The stock market is widely considered the quickest, easiest, and most popular place to invest money. There are quite a few reasons why so many investors (including me!) love the stock market:
- It’s easy to get started and you don’t need a lot of money
- It’s very liquid, which means you can buy/sell stocks quickly
- There is lots of potential to make money
- It’s relatively easy to minimize your risk
- You can take a very aggressive or a very safe approach
With that being said, if you’ve never invested before then the stock market can be incredibly confusing. This might be because the stock market has tons of jargon and it can be difficult to follow what’s going on. Unfortunately, this intimidates many beginners and scares them away from ever getting started.
To help you conquer the intimidation, we’ve created this complete guide on how you can make money in the stock market.
This guide is perfect for beginners, people who maybe don’t have much money to invest and people who want to learn how to make money fast.
Let’s examine how to make money in the stock market!
(If you don’t have a brokerage account, get started here!)
How to Make Money in the Stock Market (For Beginners)
Okay, this first image is actually a little misleading… You really don’t need to do technical analysis like this if you want to make money in the stock market. In fact, making money in the stock market is really incredibly simple at its core.
When an investor buys a stock, there are just two different strategies that they may have.
Strategy #1: Capital Gains – “Capital gains” is just a fancy word for when your stock goes up in value. The overwhelming majority of investors buy stock in hope that it will increase in value over time. For example, if you bought one share of Amazon stock in 2017 it would have cost you about $800. 5 years later, this same share of stock is worth about $3,200. This is an impressive increase of about 300% in 5 years!
An investor who bought one share of Amazon in 2017 has turned $800 into $3,200 and experienced capital gains.
There are also ways to profit off of a stock decreasing in price. However, if you’re a beginner then it’s much easier to focus on making money when a stock increases in price.
Strategy #2: Dividends – The second way to make money in the stock market is through dividend payments. A dividend is when a company pays a portion of its earnings back to investors. When they have excess cash, a company will usually pay a dividend to investors as a thank you for their investment. Dividends are usually paid out quarterly. However, some companies choose to pay monthly, semi-annually, or annually.
For example, a company like Target pays investors about $0.90 every quarter per share that they own. This means that, if you owned 100 shares of Target stock, you would get paid $90 4 times a year. By the end of the year, you would have earned $360 in dividend payments from Target. Of course, over time as Target makes (or loses) money, they might adjust the amount of their dividend payment.
Keep in mind that not all companies pay dividends. Instead, some companies will choose to take their excess cash and reinvest it back in the company. If Target decided to not pay a dividend then they would probably use their excess cash to do things like open more locations, remodel existing stores, raise their employee’s wages, etc.
Which Money Making Strategy Is Right For You?
Many investors will classify themselves as either growth investors or dividend investors. Growth investors focus entirely on how much the value of their portfolio is growing every year. They might still receive dividends from some stocks but this is not their main focus.
On the other hand, some investors build their entire portfolio around dividends. They will most likely buy stock in multiple companies so that they receive dividends every month. These types of investors are usually more interested in using stock investing as a method for creating passive income for themselves (shoutout to passive income!)
That being said, there is no rule saying you need to pick just one strategy. Plenty of investors will incorporate a blend of both. They might buy a few stocks that they expect to experience high growth while also buying other stocks that pay consistent dividends. Your exact strategy should depend on your risk tolerance. We’ll touch on this briefly at the end of this article.
Before we do, let’s examine how you can make money in the stock market with minimal money.
How To Make Money In The Stock Market With Little Money
For a long time, the stock market had multiple barriers preventing the average person from investing. For instance, most brokerages used to require a high minimum deposit to get started. This meant if you didn’t have an extra $5,000 lying around then you couldn’t open a brokerage account. Don’t have that kind of money lying around??? Don’t worry – me neither.
Brokerages also used to charge people a commission every time they made a trade. This made investing and trading a very very expensive practice! Luckily, neither of these barriers exist anymore.
These days you can get started investing with as little as $5 and a smartphone. Now is our time!
Now, we know what you’re probably thinking. What good is opening a brokerage account with just $5? This isn’t enough to buy you lunch, let alone buy a stock.
This is where fractional shares come into play.
A fractional share of stock is just what it sounds like. It’s a slice of stock that represents a partial share. A juicy piece of the pie without having to stump up the funds for the whole lot. Fractional shares are beneficial for a few reasons:
- They level the playing field – Fractional shares allow people to buy stock in great companies even if they can’t really afford it. Most of the world’s biggest and most successful companies are going to cost at least a couple hundred dollars per share. Without fractional shares, investors without a lot of money would be excluded from investing in many of the world’s biggest companies. This would be a major disadvantage.
- They allow you to invest on your own schedule – Let’s say that you set aside $100 each week to invest. However, you really want to buy shares of Amazon. Without fractional shares, you would need to “save up” for months until you had enough to buy one share of Amazon. During the time that you’re saving, you could be missing out on crucial time that the stock is rising in value.
Since you can start investing with just a few bucks, there’s no reason why you can’t get started today!
So far, most of the strategies that we’ve covered involve simply buying a share of stock and waiting. However, there’s no telling how long this strategy could take to start making money. There has to be a way to speed up the process, right?
Let’s look at how to make money in the stock market fast.
How To Make Money In The Stock Market Fast
If you’re interested in making money in the stock market fast then this section is for you. I mean surely this applies to everyone right?
However, we want to make it clear that when you chase higher returns you will have to use riskier strategies. The upside is that you have the potential to make money fast. The downside is that there is a much higher chance that you could lose money (fast).
Generally speaking, the young can adopt more risky (and potentially rewarding) strategies. Youths have the ability and time to make back any losses during the years ahead.
If however, you’re approaching retirement age, you simply cannot take risks that could destroy your retirement pot. No-one wants to spend retirement eating stale bread and dwelling on the investment regrets that got them there!
Anyway, when it comes to making money quickly in the stock market, one of the best strategies is to buy stock options.
A stock option is a contract that gives you the right, but not the obligation, to buy or sell a stock at a specific price point. There are two main types of options contracts:
- Call option – Gives you the right to buy a stock at a predetermined price. You should buy this type of option if you think that the price of the stock will go up.
- Put option – Gives you the right to sell a stock at a predetermined price. You should buy this type of option if you think that the price of the stock will do down.
There are two important things to note when it comes to stock options:
- Expiration date – Unlike stocks, stock options come with an expiration date. This expiration date might be as soon as today or as far away as a year or two in the future. Generally speaking, the longer out the expiration date is, the more expensive the contract will be. At some point, all options contracts will expire. This separates them from stocks because you don’t ever have to sell a stock. If the price dips, you can technically just hold onto it for years and wait for it to rise in value. This is part of the reason that options are riskier than stocks.
- 1 Option Contract = 100 shares of stock – For the most part, one option contract will allow you to control 100 shares of stock. This is what allows them to have such a high potential for growth. When you own one option contract, it gives you control over 100 shares of stock. This maximizes your returns in both directions.
As the person buying the contract, you get to select the expiration date and the exercise price that you want. The price of your contract will vary widely depending on these two factors.
Investing in options contracts is a little more nuanced than buying a stock. Due to this, we would recommend doing a little more research before getting started.
On that note, let’s end with a quick discussion on how you can choose the right stock investing strategy.
Choosing The Right Strategy
Let’s think about it like this… When you first choose a career, there are a lot of factors to consider. You for sure want to find a job that you’re interested in, allows you to earn a reasonable salary and generally allows you to work a schedule that you enjoy. Is that too much to ask?
You may choose to be a doctor or a lawyer for a job with security alongside a great paycheck. For some, securing this high paycheck is well worth the years of study.
However, others might have no interest in becoming a lawyer no matter how high the pay-check. For them, the years of education might seem like a waste of their youth and no amount of money can get those years back.
Others take the risk of zero security in exchange for unlimited earning potential. Shoutout to the entrepreneurs out there!
I’m in a difficult spot as I spent years training as a physician… only to come to value time above all else. However, can time spent doing something valuable ever be wasted?
What’s do you think about this conundrum? Let me know in the comments below.
As we all know, there’s no “right” career choice.
It all depends on your personal preferences.
The same is true when it comes to investing. Some investing strategies are good for people who generally play it extremely safe. Other strategies are good for people who want to take more risks.
Interestingly, taking a secure, safe job might empower you to take the most risk in your investment strategy. After all, you have your pay check (or passive income streams!) to fall back on.
So What Does All This Mean?
Before you get started investing, ask yourself the following questions:
- What are my long-term financial goals?
- Am I comfortable risking my money in hopes of getting a higher return?
- How long do I plan to keep my money invested?
The answers to these questions will give you a good idea of your risk tolerance. Understanding what your risk tolerance is will give you a good idea of how you should invest your money.
Low-risk tolerance – You should consider investing in index funds or blue-chip stocks. These are relatively safe and will allow you to mirror the returns of the overall stock market.
Medium-risk tolerance – This is where most investors fall. You should consider investing in index funds as well as individual stocks that you’ve researched. This forms the start of your diversified portfolio.
High-risk tolerance – You should consider investing in high-growth stocks and can use stock options to help amplify your returns.
That’s all folks.
We hope that you’ve found this article valuable when it comes to learning how you can make money in the stock market!?
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