For many people, one of the easiest ways to make money in the long term is to invest in the stock market. There have been many proven ways to do it, and for a lot of beginners, the hardest part is taking the initial jump to begin investing. But what a lot of beginners will find is that with a few basic tips, you can make a lot of money on your own without paying fees and commissions to fund managers that eat up your profits.
For a lot of beginners, the biggest resistance was always the fear of losing money and the historical need to pay a brokerage a lot of fees to trade equities. These days though, there are many brokerages who can provide $0 commission trades if you set yourself on a self-guided platform. This means you will not have access to in-person assistance, but you will be able to buy and sell equities on your own and have access to some analysis information.
For beginners in the stock market, it is important to know how to make money in the market. There are two main ways to make money with stocks, growth stocks and dividend stocks. Growth stocks make you money only when the share price goes up in value after you purchase it. It behaves on a supply and demand principle that with a finite number of shares in a company, if people want to own part of that company, they can buy it. When there are more buyers than sellers, the price goes up signaling a demand for the stock. Thus, it also works vice versa.
In order to make money on growth stocks, you must do research to make educated guesses that buying stocks before someone else does will make you money and sell before others decide it needs to be sold. Keep an eye out for things like price targets by analysts or track employee stock trades to see if there is any insider selling or buying that might be moving the price without anyone’s knowledge as to why.
Another way to make money in the market is called income stocks. These are stocks that may not have much fluctuation in share price but pay out what is called a dividend. While it’s likely you will not make money quickly owning dividend stocks, it is a proven strategy to building wealth over a long period of time, as many successful investors cite the ability of compound growth by being able to reinvest dividends back into companies they own. This means that if you own 100 shares of a company and it has a high enough yield, by doing nothing other than owning it, you can receive enough income to buy stocks without depositing your own funds.
Finally, a third way of making money in the stock market and perhaps the most common is the use of indices. Indices are holdings of individual stocks for those who wish not to buy individual equities or would rather have fund managers manage investments for them. The main types of indices are exchange-traded funds and mutual funds.
Exchange-traded funds (ETF’s) are a portfolio of equities that you can trade in real-time but are managed. Mutual funds are also a portfolio of equities; however, you can only buy them at the end of trading day and are much more actively managed to try and beat the market. You can finally just invest in index funds which are less weighted and are designed to mimic the market or a portion of the market.
In today’s world, it is becoming a lot more common for people to invest on their own and rely less on money managers. In fact, many brokerages have embraced this trend and have made it much easier for the typical retail investor to get started. Goldman Sachs, for example, has now made an app that makes it easy for any beginner to start funding their own account so they can start trading on their own. Along with the commission-free trading, people are suddenly seeing how much better their returns are when they do their own research, and their investments are not getting eaten up by fees and commissions.