How To Invest in Stocks and Bonds (Start in 6 Easy Steps!)

how to invest in stocks and bonds

Learning how to invest in stocks and bonds sounds daunting. But investing is easier than ever thanks to tools such as auto-investing and fully-managed portfolios. Whether you’re investing early at 18 or you’re a full-fledged veteran, you can take advantage of online brokers that do the heavy lifting for you. 

But before you invest in stocks, bonds, or any other security, you should probably know what they are.

What is a stock? 

A stock, or equity, is a security that represents fractional ownership of a corporation. Corporations issue or sell shares of stock to raise funds for their business. 

Stocks are an important investing tool because they often outperform other investments long-term. For example, between 1926 and 2019, a 100% stock portfolio would have returned 10.3% on average, compared to 5.3% for 100% bonds. 

However, stocks can also be risky investments. Just look at the 2020 stock market crash

How do stocks work?

Stock shares are primarily traded on exchanges, such as the New York Stock Exchange (NYSE). The most common way to buy individual stock is to open an account with a stockbroker and place a buy order.

Keep in mind that stock prices often fluctuate with supply and demand, shareholder sentiment, and corporate activity.

What happens when I buy stock?

Depending on the type of stock, owning shares grants different rights. For instance, you may:

  • Receive quarterly dividends 
  • Vote in shareholder meetings
  • Sell your shares to another person

Do you pay taxes on stocks?

Stocks are taxed in two ways:

  • On capital gains, or the price difference between what you buy and sell stock for. Short-term capital gains taxes on shares you hold for less than one year are the same as ordinary income taxes. Long-term capital gains taxes on shares you hold more than a year levy 0%, 15%, or 20%, depending on your tax bracket. 
  • On dividends, which can either be qualified or nonqualified. Qualified dividends incur taxes of 0%, 15%, or 20%, depending on your tax bracket. Nonqualified dividends, or ordinary dividends, are taxed as ordinary income. 

What is a bond? 

Bonds are fixed-income securities that are, in essence, an I.O.U. between the lender, or the person buying the bond, and the borrower, or the institution selling the bond. 

Bonds are typically issued by corporations or governments to fund new projects or hire new employees. Many portfolios invest in bonds to hedge against risk and increase long-term gains. However, they don’t generate as much profit as equities. 

How do bonds work?

Bonds can be either publicly traded or issued OTC (over-the-counter). All bonds represent legal agreements between the borrower and the lender. 

The borrower, or issuer, denotes the terms of the loan, interest payments, and maturity date, which is when the principal must be paid back. The interest payment or coupon can be paid out either annually or when the bond matures. 

What happens when I buy a bond?

Depending on the type of bond you buy, you may receive interest payments for lending your capital. Some bonds don’t pay interest, but instead, they end up paying you more than you initially lent the issuer at the maturity date. 

Do you pay taxes on bonds?

If you own a bond that generates taxable income, like interest, then you will be taxed on that income the same year you receive the funds. However, some bonds, such as municipal bonds, generate tax-free profits.

You can also incur capital gains taxes on bonds. This usually occurs when you buy bonds at a discount on secondary markets. 

Are stocks and bonds a good investment?

Investing in stocks and bonds can be a good way to make money in your portfolio. And the good news is, you don’t need a lot of capital to get started!

A MoneyLion investment account makes investing approachable and effortless. Our fully-managed portfolios and auto-invest options are great for everyone from newbies to veterans. And with thematic investing, you can put your money where your values are, such as environmental and social change, futuristic technology, or dividend-paying ETFs. 

Launch your investing journey in 6 steps

With MoneyLion investing, you don’t need to learn how to invest in stocks and bonds separately. And the process is simple! Just sign up for a RoarMoney® account for $1 per month, and your investment account will already be included! 

Step 1: Enroll in a MoneyLion Zero-Fee Bank Account

The first step to launching your investing journey is to enroll in a MoneyLion account. Download the app or open the web portal. Input your date of birth, residential address, and mobile phone number. Be sure to have your phone on you, as you’ll have to enter a verification code sent via SMS. 

Step 2: Set up your investment account

Next, it’s time to answer a few questions about your risk tolerance and investment objectives. You’ll also get a chance to decide whether you prefer to invest in stocks, bonds, or both. Keep in mind that there are no wrong answers here! 

Step 3: Answer the SEC required questions

The SEC requires that every prospective investor answers a few yes-or-no questions before they invest. Most individuals won’t answer yes, but it’s crucial to be honest!

Step 4: Preview your portfolio

Next, MoneyLion will preview an investment portfolio based on your risk profile and stock versus bond preference. If you don’t make changes now, don’t worry. You can always come back later.  

Step 5: Time for legalities

Before you can start funding your account, you’ll have to read and sign the legal agreements for your MoneyLion membership. Then, you’ll need to provide your Social Security Number and confirm your personal details.  

Step 6: Explore!

After you’ve confirmed your details and the app has accepted your application, it’s time to start investing. At this point, you can fund your account, add a theme to your portfolio in the investment screen, set up auto-investing with recurring bank transfers, and more! 

Invest in stocks, bonds, and more with MoneyLion!

Learning how to invest in stocks and bonds is easy with a little education and some professional guidance. Fortunately, MoneyLion’s fully-managed investment accounts with auto-invest, and thematic investing both simplifies and diversifies the process even more. 

If you’re ready to plunge headfirst into exciting investment opportunities, be among the first to sign up for the MoneyLion Crypto List! Soon, you’ll be able to buy, sell, and earn cryptocurrencies through the MoneyLion app as long as you have an active RoarMoney account.

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