How to Invest in Stocks and Make Money – Stock market investments are a great way to invest your savings. More importantly, it can also be an excellent way to have money set aside for future expenditures, college tuition/savings, emergencies, etc. However, investing in stocks is not the easiest thing to do – even for many seasoned professionals! I’m going to go over everything you need to know about investing in stocks, so keep reading!
Learning how to invest in stocks can be a tricky thing. There are so many option but you don’t know which ones to go with. There is no dearth of information online as such, but it’s mixed with loads of lies. It becomes even more confusing when you come across lots of jargon that seem very technical for a novice investor like you.
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Buy and Hold
There’s a common saying among long-term investors: “Time in the market beats timing the market.”
What does that mean? In short, one common way to make money in stocks is by adopting a buy-and-hold strategy, where you hold stocks or other securities for a long time instead of engaging in frequent buying and selling (a.k.a. trading).
That’s important because investors who consistently trade in and out of the market on a daily, weekly or monthly basis tend to miss out on opportunities for strong annual returns. Don’t believe it?
Consider this: The stock market returned 9.9% annually to those who remained fully invested during the 15 years through 2017, according to Putnam Investments. But, if you went in and out of the market, you jeopardized your chances of seeing those returns.
- For investors who missed just the 10 best days in that period, their annual return was only 5%.
- The annual return was just 2% for those who missed the 20 best days.
- Missing the 30 best days actually resulted in an average loss of -0.4% annually.
Clearly, being out of the market on its best days translates to vastly lower returns. While it might seem like the easy solution is simply to always make sure you’re invested on those days, it’s impossible to predict when they will be, and days of strong performance sometimes follow days of large dips.
That means you have to stay invested for the long haul to make sure you capture the stock market at its best. Adopting a buy and hold strategy can help you achieve this goal. (And, what’s more, it helps you come tax time by qualifying you for lower capital gains taxes.)
Play the stock market.
Day trading is not for the faint of heart. It takes grit and determination. It takes understanding the different market forces at play. This isn’t something intended for amateurs. But, if learned and learned well, it is a way where you can quickly — within the span of hours — make a significant amount of money with a relatively small investment.
There are also ways to hedge your bets when it comes to playing the stock market. Whether you play the general market or you trade penny stocks, ensure that you set stop-loss limits to cut any potential for significant depreciations. Now, if you’re an advanced trader, you likely understand that market makers often move stocks to play into either our fear of failure or our greed. And they’ll often push a stock down to a certain price to enhance that fear and play right into their pockets.
When it comes to penny stocks, this is further exaggerated. So you have to understand what you’re doing and be able to analyze the market forces and make significant gains. Pay attention to moving averages. Often, when stocks break through 200-day moving averages, there’s potential for either large upside or big downside.
Opt for Funds Over Individual Stocks
Seasoned investors know that a time-tested investing practice called diversification is key to reducing risk and potentially boosting returns over time. Think of it as the investing equivalent of not putting all of your eggs in one basket.
Although most investors gravitate toward two investment types—individual stocks or stock funds, such as mutual funds or exchange-traded funds (ETF)—experts typically recommend the latter to maximize your diversification.
While you can buy an array of individual stocks to emulate the diversification you find automatically in funds, it can take time, a fair amount of investing savvy and a sizable cash commitment to do that successfully. An individual share of a single stock, for instance, can cost hundreds of dollars.
Funds, on the other hand, let you buy exposure to hundreds (or thousands) of individual investments with a single share. While everyone wants to throw all of their money into the next Apple (AAPL) or Tesla (TSLA), the simple fact is that most investors, including the professionals, don’t have a strong track record of predicting which companies will deliver outsize returns.
That’s why experts recommend most people invest in funds that passively track major indexes, like the S&P 500 or Nasdaq. This positions you to benefit from the approximate 10% average annual returns of the stock market as easily (and cheaply) as possible.
Invest in a money-making course.
Investing in yourself is one of the best possible investments you can make. While you might not be able to pinpoint an actualized return on investment, there’s no money that’s better spent. Invest in yourself. Invest in your education. Learn. Adapt. Grow. Discover what you’re passionate about.
There are loads of money-making courses on the internet. The hard part is choosing the right one. From ebooks to social media marketing, search engine optimization and beyond, the possibilities are endless. While many money-making gurus might pop up on social media, not all courses are created alike. Spend time doing your due diligence and research to choose the one that’s right for you.
Reinvest Your Dividends
Many businesses pay their shareholders a dividend—a periodic payment based on their earnings.
While the small amounts you get paid in dividends may seem negligible, especially when you first start investing, they’re responsible for a large portion of the stock market’s historic growth. From September 1921 through September 2021, the S&P 500 saw average annual returns of 6.7%. When dividends were reinvested, however, that percentage jumped to almost 11%! That’s because each dividend you reinvest buys you more shares, which helps your earnings compound even faster.
That enhanced compounding is why many financial advisors recommend long-term investors reinvest their dividends rather than spending them when they receive the payments. Most brokerage companies give you the option to reinvest your dividend automatically by signing up for a dividend reinvestment program, or DRIP.
Trade commodities.
Trading commodities like gold and silver present a rare opportunity, especially when they’re trading at the lower end of their five-year range. Metrics like that give a strong indication on where commodities might be heading. Carolyn Boroden of Fibonacci Queen says, “I have long-term support and timing in the silver markets because silver is a solid hedge on inflation. Plus, commodities like silver are tangible assets that people can hold onto.”
The fundamentals of economics drives the price of commodities. As supply dips, demand increases and prices rise. Any disruption to a supply chain has a severe impact on prices. For example, a health scare to livestock can significantly alter prices as scarcity reins free. However, livestock and meat are just one form of commodities.
Metals, energy and agriculture are other types of commodities. To invest, you can use an exchange like the London Metal Exchange or the Chicago Mercantile Exchange, as well as many others. Often, investing in commodities means investing in futures contracts. Effectively, that’s a pre-arranged agreement to buy a specific quantity at a specific price in the future. These are leveraged contracts, providing both big upside and a potential for large downside, so exercise caution.
Choose the Right Investment Account
Though the specific investments you pick are undeniably important in your long-term investing success, the account you choose to hold them in is also crucial.
That’s because some investment accounts give you the benefit of certain tax advantages, like tax deductions now (traditional retirement accounts) or tax-free withdrawals later (Roth). Whichever you choose, both also let you avoid paying taxes on any gains or income you receive while the money is held in the account. This can turbo charge your retirement funds as you can defer taxes on these positive returns for decades.
These benefits come at a cost, though. You generally cannot withdraw from retirement accounts, like 401(k)s or individual retirement accounts (IRAs), before age 59 ½ without paying a 10% penalty as well as any taxes you owe.
Of course, there are certain circumstances, like burdensome medical costs or dealing with the economic fallout of the Covid-19 pandemic, that let you tap into that money early penalty-free. But the general rule of thumb is once you put your money into a tax-advantaged retirement account, you shouldn’t touch it until you’ve reached retirement age.
Meanwhile, plain old taxable investment accounts don’t offer the same tax incentives but do let you take out your money whenever you want for whatever purpose. This lets you take advantage of certain strategies, like tax-loss harvesting, that involve you turning your losing stocks into winners by selling them at a loss and getting a tax break on some of your gains. You can also contribute an unlimited amount of money to taxable accounts in a year; 401(k)s and IRAs have annual caps.
All of this is to say, you need to invest in the “right” account to optimize your returns. Taxable accounts may be a good place to park your investments that typically lose less of their returns to taxes or for money that you need in the next few years or decade. Conversely, investments with the potential to lose more of their returns to taxes or those that you plan to hold for the very long term may be better suited for tax-advantaged accounts.
Most brokerages (but not all) offer both types of investment accounts, so make sure your company of choice has the account type you need. If yours doesn’t or you’re just starting your investing journey, check out Forbes Advisor’s list of the best brokerages to find the right choice for you.
Trade cryptocurrencies.
Cryptocurrencies are on the rise. While trading them might seem risky, if you hedge your bets here as well, you could limit some fallout from a poorly-timed trade. There are plenty of platforms for trading cryptocurrencies as well. But before you dive in, educate yourself. Find courses on platforms like Udemy, Kajabi or Teachable. And learn the intricacies of trading things like Bitcoin, Ether, Litecoin and others.
While there are over 3,000 cryptocurrencies in existence, only a handful really matter today. Find an exchange, research the trading patterns, look for breakouts of long-term moving averages and get busy trading. You can use exchanges like Coinbase, Kraken or Cex.io, along with many others, to make the actual trades.
Trade options.
When it comes to options, Tom Sosnoff at Tastyworks says, “Trade small and trade often.” What type should you trade? There are loads of vehicles, such as FOREX and stocks. The best way to make money by investing when it comes to options is to jump in at around 15 days before corporate earnings are released. What type should you buy? Money calls.
The optimal time to sell those money calls is the day before the company releases its earnings. There’s just so much excitement and anticipation around earnings that it typically drives up the price, giving you a consistent winner. But don’t hold through the earnings. That’s a gamble you don’t want to take if you’re not a seasoned investor, says John Carter from Simpler Trading.
Use peer-to-peer lending.
Peer-to-peer lending is a hot investment vehicle these days. While you might not get rich investing in a peer-to-peer lending network, you could definitely make a bit of coin. Which lending platform do you use? Today, there are many to choose from, but the most popular ones include Lending Club, Peer Form and Prosper.
How does this work? Peer-to-peer lending platforms allow you to give small bursts of capital to businesses or individuals while collecting an interest rate on the return. You get more money than you would if you placed it in a savings account, plus your risk is limited because the algorithms are doing much of the work for you.
Once you identify the offer, you can dig in and do some research — then, you can either take the deal or not. You’ll have your risk evaluated based on a proprietary algorithm that includes employment and credit history, and you’ll be able to make the decision to invest based on a variety of well-thought-out data.
Flip real estate contracts.
Making money with real estate might seem like a long-term prospect, but it’s not. There are ways you can take as little as $500 to $1,000 and invest it in flipping real estate contracts to make money fast. How? Use a system like Kent Clothier’s REWW to first understand how the market works. It’ll then provide you with the data and tools to identify vacant homes, distressed sellers and cash buyers.
While most people think that real estate is won by flipping traditional homes and doing the renovations yourself, the fastest money you can make in real estate involves flipping the actual contract itself. It’s arbitrage. Identify the motivated sellers and cash buyers, bring them together and effectively broker the deal. It might seem odd on the first go, but once you get the hang of it, you can become a mini-mogul in the real estate industry by simply scaling out this one single strategy. It works, and it’s touted by some of the world’s most successful real estate investors.
Conclusion
Investing is one of the most popular financial activities that people do in order to create wealth for themselves and their families. Investing is a bit like playing a game, but it can be learned easily if you know where to start. With investing, there are some basic strategies that will lead you to winning if done properly. That is why you need to educate yourself on stock market trends and how to make money from stocks.