How Do You Make Money in The Stock Market?
I’m sure you’ve been wanting to know for a while…
So… I’ll just share it with you today…
Just how do you make money in the stock market?!
Well, it’s both simple and yet complicated at the same time.
Stay with me and I will show you the basics, help you get started, and then you can watch your investments grow – and enjoy reaping the benefits!
The secret to making some money in the stock market is by staying in the market-after all it is how long you remain in there that will be the biggest indicator of your success.
As we start this journey, let’s set you up with a few facts.
The average return on the stock market is 10%, which is far better than you can expect from bonds or even bank accounts.
Everyday investors have made this return using nothing more than a simple, cheap fund designed to keep track of the market, like a Standard and Poor’s 500 index fund.
But why do some NOT earn this?
Well, they get scared, or they start to get greedy.
The secret to making money is to stay in the market.
Do not let emotions play into how you trade-fear is not an investment strategy and you could end up missing out on a really great return.
Before we get too deep into this stuff, let me tell you that you will need a brokerage account to get started investing and making money.
If you don’t have one, I can tell you right now it’s faster than ordering a Starbucks frap-and super easy to start.
Understanding the Importance of Time
The phrase “time in the market” or “how long you’ve been in the market” is a reference to how long you’ve been invested. And note, this is invested in the market (not trading).
The more time you have invested, the more chances you have for your investments to go up in value.
The most successful companies tend to increase their amount of profit over time, and investors, in turn, reward these earnings with a higher stock price.
The more time you give a company, the more time they have to reward you with a high-priced stock, which you can sell (you’ve probably heard the phrase “buy low, sell high”).
The more time you spend in the market, the more you can collect any cash dividends if your company pays one.
What is a dividend? Well, think of it like a little gift that your company of which you hold a stock is giving you for being a great investor.
They are payments made from the company to its shareholders, paid to investors after the company has squared away its own capital necessities.
They are payments you can really look forward to!
Bear in mind, however, that time plays a huge role in getting these dividends.
If you trade in and out of the market daily, weekly, or monthly, you are not going to get those dividends.
You will not own the stock at the appropriate time to make you eligible for the payouts.
So, stick to your guns…think of it as that one dress in your closet that always makes you look good no matter what kind of day you’re having.
How To Make Money: Four Ways
Now that you have a basic understanding of how the stock market works, and how not to let emotions play into your investment strategy, you can now learn four different ways to make some money.
Method 1: Buy Low and Sell High
This one is straightforward and is most likely the advice you’ve heard somewhere along the line.
It’s just like when we are shopping and see a good deal waiting for us.
We strike while the iron is hot-buying up whatever’s on sale in quantity.
The same goes for stocks.
You buy them low and then sell them when they are higher priced, netting yourself a good profit.
If you have a strong feeling that the stock price will increase over time, you should buy it now and then sell it off when the price goes up to your take-profit number.
Method 2: Short Sell High, Buy Back Low
Another method of making money is by short-selling the stock when it is at a high price, and then buying it back when it is lower priced later on. This is now crossing over into trading, not investing for the long-term.
When you short sell a stock, you will need to borrow that stock first before you are able to short sell it.
This is a rule regulators have set, and one that you need to follow.
However, we do have one exception you should know about.
If you are taking part in day trading, then you are not required to borrow the stocks because you will have bought that stock back before the market closes.
This regulatory requirement differs from country to country.
So be sure you know what your nation demands when it comes to short sales.
Check it out, and make sure you are in total compliance!
Method 3: Earning Dividends from Stocks
We did touch on dividends briefly. You can buy stocks called dividend stocks on the stock market.
The underlying companies of these particular stocks pay out dividend payments to their shareholders bi-annually, or twice a year, based on their dividend schedule.
Some examples that you already know and love are IBM, Philip Morris International, and Coca Cola.
Method 4: Sell Options on Stocks
Option is a contract in which the seller of the option contract agrees to buy or sell the underlying stock at a pre-agreed upon price, on a pre-determined expiration date from the buyer of the option contract. Again, this is more often trading not investing, so I leave that for another post.
When you sell option on stocks, you are able to collect premiums from the option buyer.
To put it differently, you get paid up-front when you sell these options.
If the option contracts expire totally worthless, you get to keep your money for free.
Step by Step: How to Make Money
Here is a quick step by step rundown of how you too can earn money at the stock market.
- Understand why you are investing-what are your objectives?
- Learn the basics of stock market investing.
- Pick a strategy that best suits your personal goals and your personality type.
- Create a portfolio that is diversified.
- Understand risk management and how much you can take.
- Keep your portfolio under constant review, rebalancing if necessary.
Which is Better: Index Funds or Mutual Stocks?
Do you like the sound of that sweet, sweet 10% return that we mentioned earlier on? Start with an index fund.
These funds are made up of dozens, even hundreds of stocks that reflect an index like the Standard and Poor’s 500, so you don’t need to know much about individual companies to do well in this area.
Just like dieting, you just need a solid sense of discipline. This is the main ingredient to success in anything we attempt in life – and investment is no different.
If you’d prefer to go ahead and invest in an individual company, you should consider one of these best online stock brokers for beginners.
You can potentially earn high returns doing individual stocks rather than an index fund, but you will need to research the stock and the company before you can expect to make this type of money.
Another great option, if you really want to get personal, is to talk to a real-life stockbroker.
He or she makes it their goal to see to it you are satisfied.
They can’t guarantee that you will make any money on your investments, but they will give you expert advice, and insight into the complex world of stocks and the market as a whole.
As your client, they will do their best to grow your money and offer you the most sound advice after all.
They make their money managing your account and they would not want you to move your money elsewhere, should you be unhappy.
You can tell your broker about what your long-term goals are, and they will help you invest.
They will also handle the paperwork and record-keeping end of buying and selling stocks, making it that much easier for you.
This is a great option for those who just want to speak to somebody face to face.
Ladies, there’s no need to be afraid to start your investing journey.
Thankfully, there are plenty of online and real-life investment firms that can get you started.
The name of the game is to not let fear and greed control your investment strategy.
Index funds are a great place for newbies to start, and those of you that want to invest individually can do so-so long as you do the right research and hold the stock for the long term.
Best of luck and happy investing!