If you have always wanted to know about making money in stocks then we will explain how you can do that here. Having a savings account will not make you much money these days as the interest rates are so low. But the stock market consistently returns yields of 10% every year.You have to know what you are doing of course.
With the right knowledge you should be able to easily get a 10% return by investing in something like an S&P 500 index fund. The reason that a lot of people fail on the stock market is that they are fearful. Another top reason is greed.
You will need a broker account for your stock market investments. It is really easy to open a brokerage account and you should be up and running in around 15 minutes. There are different brokerage accounts, and you need to decide if you want an online account or a full serviced account.
Your Time in the Stock Market is essential for Success
One of the best secrets to making money in stocks is the amount of time you spend in the market. This will provide you with the best indicator and predictor of your performance. You can analyze what you have done in the past and see if you made any emotional trades that went wrong.Greed and fear are the most common emotions.
The longer that you remain in the stock market the more chance you have of your stocks going up. A quality company that you have invested in will increase profitability over time. You need to give your investments in company’s time to grow so that their stock prices will rise.
When you are in the market for a while you are also more likely to receive dividends from some of your stock holdings. If you become a “day trader” where you move in and out of stocks quickly then you will not receive any dividends.
You need to plug in to the stock market as often as you can. Missing days can really mean the difference of making a healthy annual return and not. The well respected investment firm, Putnam Investments, believes:
- Missing the top 10 days in a year can reduce your return to 5%
- If you miss the top 20 days in a year you can reduce your return to 2%
- And missing 30 or more of the best days in a year can mean you lose money
The Different ways of Making Money in Stocks
There are a couple of ways that you can make money with stocks. The most obvious of these is when the share price of a stock you are holding increases. The market will look at a business and value it based on its performance. They will take account of increased profits,business expansion and share repurchases.
Wall Street uses a price to earnings ratio to assist with the valuation of stocks. If a company was to grow 20% over a number of years to increased profitability, expansion and repurchases of shares then a stock that started out with a value of $10 could easily climb to $620.
The other common way to profit from investing in stocks is the receipt of dividends. If the company you have invested in pays dividends then you will receive these in your brokerage account. You can also choose to receive a check or have the dividends paid into your bank. It is a good idea to go for additional shares rather than dividends if this option exists.
Markets often go through bubbles and when this happens you may have the opportunity to sell your stocks at a higher price for a short period of time. Obviously this is a short term strategy but if it makes sense to you to do this then you can make money.
Stop Making Excuses and start Making Money in Stocks
If you want to invest in the stock market then you always have to accept that prices can go up or down. But that is no reason not to make investments. You will see a lot of amateur investors panic if the market dips. They will end up selling their share holdings at a loss rather than take the risk that the prices will rise again.
One of the biggest excuses investors make for not investing is that they are waiting. They are waiting for a safe time to invest. What this really means is that the prices have fallen and they want to wait until they rise again. You will pay more for your stocks of you do this.
Another classic excuse is to wait for a stock price to drop even lower. An investor will come back next week when it has dropped again. But the prices could rise just as much as fall so this strategy rarely works.
Some investors will tell you that they are selling their stocks because they are “bored” of them. The truth is that making money in stocks is boring because those that wait around the longest usually make the most money. Regularly trading in and out of the stock market is not the best way of making money in stocks.