It’s hard to find someone nowadays who doesn’t know that you can make decent money with stocks. This topic has become so common that sometimes it’s difficult to believe if you’ve never engaged in it.
The good news is that it’s truly possible, but it requires effort and continuous learning. However, you don’t necessarily have to figure it out alone.
Earning from Investments
The first thing to be prepared for when you start working with stocks is to monitor the market constantly. Be ready for instability while maintaining steady patience. Unlike bonds, stocks don’t guarantee a fixed return within a specific timeframe. Stock investments are made for years, not just a day or two.
There are four ways to earn from stocks:
- Earnings from price fluctuations: Buy stocks during price drops and sell when the price increases.
- Borrow from a broker: Sell borrowed stocks at a high price and then buy them back at a lower price.
- Buy options: Invest in stocks with options that include price changes.
- Earnings from dividends by building a suitable stock portfolio.
In the last case, you earn through investing.
Earning through Dividends
Dividends are profits distributed by the company you’ve invested in. It’s a reward from the company for holding their stocks. You need stocks in your brokerage account that pay dividends to receive them.
John Bogle stated in his book “The Intelligent Investor”:
“The true investor…forgets about the market and pays attention to the dividends and earnings of the companies whose stocks he owns.”
In short, the process of starting to invest in dividend-paying stocks looks like this:
- Open a brokerage account.
- Fund your brokerage account.
- Buy dividend-paying stocks.
The frequency of dividend payouts varies by company. Some pay monthly, others quarterly. Generally, American companies tend to pay dividends quarterly.
You can find out how and where a company pays dividends from your broker. These resources provide up-to-date financial market analyses and dividend tracking:
- Finviz
- Seeking Alpha
- Simply Safe Dividends
- Track Your Dividends
To generate passive income from dividends, you must invest in dividend-paying stocks and create a source of passive income for yourself. Contrary to the common stereotype, you don’t need a large capital upfront to start earning with stocks.
Even with a monthly income of $500, you can gradually buy one or two shares monthly. Over ten to fifteen years, you can accumulate capital that covers your expenses through earned dividends. This initiates the “magic of compound interest” in your life, where money makes more money. So, the sooner you start, the closer you’ll get to your goal.
Can You Earn without Dividends?
However, not all companies pay dividends. Some of them reinvest their profits for their development, which doesn’t make them a bad investment. Companies like Amazon, Google, and Microsoft follow this strategy. The earning principle here is slightly different: as they grow and develop, the value of their stocks increases.
For instance, you bought stock from a company for $100. After a year, the company reinvested its profit and reached a higher income level, making the stock more valuable. Now, the stock price is $150. Thus, by holding the same stock, you’ve gained $50. It’s best to invest in popular companies like Apple, Microsoft, and Tesla.
You can trade stocks using applications or through a broker’s website. Of course, you can’t choose one strategy forever as the market evolves.
Where to Choose a Broker and Trade on the Stock Exchange
A broker serves as a crucial intermediary between investors and financial markets. It allows investors to trade various financial instruments, including stocks. You can find a broker on these resources that will help you understand how to invest properly and provide guidance:
- Freedom Finance
- Interactive Brokers
- Exante
- Just Trad
Please note that when choosing a broker, ensure their activities are licensed by the Central Bank!
Important factors for choosing a broker also include commissions, trading fees, and available financial instruments.
Is There a “Magical Investing Table”?
Shareholders and investors always seek to forecast as income and expenses depend on it. An American farmer named Samuel Benner once faced severe impoverishment. After this, he decided to analyze the market. At some point, he observed a certain periodicity where market trends repeated.
Consequently, he tracked when it was worth investing, when the markets were overheated, and when a downturn was imminent. This led him to create what is known as the “Periods When to Make Money” table.
Many investors perceive this table almost as a magical crystal ball of predictions. Whether it’s worth using it, in reality, is a topic on which experienced investors share the following thoughts:
- The events listed in the table may more or less align, but certainly not year-to-year.
- The table showcases periods of rise and fall. However, practice shows that growth consistently outweighs decline.
- In any case, analysis is always necessary, considering indices, risks, and other factors.
It’s also worth noting that there is no perfect time or method for earning with stocks and predicting the behavior of the stock market.
“Anyone who invests in stocks should not be overly concerned about the volatile fluctuations in security prices, as in the short run the market acts like a voting machine, but in the long run, it acts like a weighing machine,” notes one of the investment titans, Benjamin Graham.
Regardless of how you intend to earn with stocks, this process requires preparation and gradual immersion into the field.
Step 1. Delve into the Topic
Any financial manipulations (especially if you intend to earn) require understanding and familiarity with how it works. Therefore, a reasonably sound theoretical background in this case will be beneficial. Especially if you draw knowledge from those who understand how to start investing in stocks from scratch:
- “Investments and Trading” by Simon Vine
- “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor” by Jeremy Miller
- “How to Make Money in Stocks” by William J. O’Neil
- “The Intelligent Investor” by Benjamin Graham
- “The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns” by John C. Bogle.
Furthermore, numerous podcasts are online about investing correctly, what to consider, common mistakes, and more.
Step 2. Study the Companies to Invest In
Sometimes, making a choice and deciding where to invest can be challenging. Many companies offer stocks, and relying solely on documents is a questionable method.
This is because various factors can influence a company’s rise or fall, such as the company’s office location, a new CEO, or social media activity. Consequently, the stock’s value is affected. Advice from experienced investors: choose only those stocks related to industries you are at least somewhat familiar with, especially if you’re a beginner in investing.
Step 3. Prepare for the Long Haul
Before investing in stocks from scratch or with a certain capital, be prepared for a process that spans years. Aim for an 8-10 year timeframe. Choose companies that show signs of being able to endure such a period. Otherwise, they aren’t worth your attention.
Step 4. Risk Diversification
It’s better to construct a portfolio of 10-15 companies to distribute potential risks and expand it by increasing your investment capital.
If you find it difficult to make a well-balanced decision, feel confused, and don’t understand where or how to start investing in stocks, consult an experienced broker or financial expert.
Tips for Novice Investors
Initially, it might seem that investing in stocks is complex, full of pitfalls at every turn, requiring a special knack… but everything comes with practice, the key is to start. To make this path smoother, consider a few pieces of advice on how to invest money in stocks from experienced investors:
- Strive to create a diversified investment portfolio.
- When allocating funds for investments, try directing up to 20% of the funds towards assets with high growth potential (i.e., riskier assets).
- Focus not on achieving maximum profit but on maintaining stability over the years.
- Regularly invest in your portfolio.
- Utilize dividends for investments, not just profits.
- Don’t hesitate to invest your available funds.
- Learn to control your emotions and adapt to the market.
- Build a financial cushion and avoid spending your last penny.
The times when investing in stocks and earning from the stock exchange was considered a privilege for the wealthy or particularly daring were in the past. Nowadays, this method of earning is accessible to everyone who has reached adulthood.
All you need to do is create your brokerage account, choose assets for investment, and take the first step towards a new income level. From there, it’s all about practice and patience.
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