Make Money in Stocks, the Safe Method for Betting on Stocks
Today we’ll be talking about a question that many people ask themselves, financial advisers, friends, family, anyone who’s ever had a brokerage account, and anyone who’s ever studied finance in college. How do you make money in stocks? The stock market has been around for over a century, it seems like by now we should have an answer. Something that says exactly how you’re supposed to invest and make money in the stock market. However, as much as people want to open an article in a magazine or a book from a famous investor and hear how they made all their money off investing in a single stock, this situation is the outlier.
The only surefire way to guarantee financial growth is through long-term investing in a diversified portfolio. That is not to say, that there is not a case where you can make millions off a single stock, it is just extremely rare and not rare like rolling snake eyes, rare like winning the lottery twice in a row then walking outside and getting struck by lightning three times.
Having Consistent Income Outside the Market
One of the most important things to do before ever investing in the stock market is to guarantee that even if when you invest you lose it all, there is something that you have that can financially support you. This is the safest method for investing. Whether this is a freelance gig, a job, an internship, anything that gives you consistent income and will give you the safety and financial security while you are investing in the stock. It is important to do this before pulling any money out of your savings and immediately jumping into the stock market just because your cab driver told you that he heard about a great stock that was going to shoot up. It’s important to set aside any human desire to dive right in when an “opportunity” presents itself and consider everything involved, including your financial well-being.
Make Money Investing in Single Stocks
Just as I previously mentioned, although it is entirely possible to make money off investing in a single stock it is so rare that it is nearly infeasible. Sure, everyone thinks to themselves I found the next Apple or I found the next Google and everyone wishes that they had invested In Google in the 90s and everyone wishes that they had invested in Amazon in the early 2000s, but this desire to think one has found an outlier can cause you to lose a ton of money. Unless there is significant evidence backing up the fact that this company could have such an earnings spike that its stock price could jump by so much then you should not think that way, and even if there is you should still be skeptical.
The safest way to invest in a single stock, if you are truly passionate about a single stock that you think shows true promise, is to have two things first: a consistent income source from a job, internship, or anything else that will provide you with the money to put a roof over your head and food on your table, and a diversified portfolio such that in the event that this stock turns out to be a flop, your losses will be able to offset themselves.
Make Money Investing in a Diversified Portfolio
Creating a diversified portfolio is the most important thing for any investor who is putting money into the stock market. A diversified portfolio will provide you with the average 10% gain that the Dow Jones and S&P 500 indexes see annually. In years of a bear market this may be lower, but typically during a recession single stocks do not perform as well as the indexes anyways. Again, there are many outliers, but unless you have some substantial evidence as to why those stocks will be outliers it is highly recommended that you do not keep your portfolio reliant on a single stock.
A diversified portfolio will give you peace of mind while also allowing you to get your feet wet in the stock market. The entire method of making money in stocks is much like everything else in life, it takes time and it is never easy. It’s important to know that the stock market is as forgiving as an actual bear or bull. In order to make money in stocks you must invest long term in dozens if not hundreds of stocks in different industries whose losses will be offset by consistent gains of others.
Making Money in Penny Stocks
Now there are an entire collection of people who believe that they know that the markets is good and just and it cares about what the companies that are on it do. These people like to invest in penny stocks. Penny stocks are stocks that cost less than $5 per share. These penny stocks are typically made of garbage. They are high risk, low carb, and nobody can predict which penny stocks will increase. In the early 2000s at the height of the .com bubble it was common for sites that had simple features that were just run on servers in people’s basements to be listed on the stock market as penny stocks. Just imagine now if there was a stock for coolmathgames.com, would you buy it? Probably not.
Making Money in Bitcoin
Bitcoin is another “investment” strategy that many people thought they could make millions off. If you happened to know about Bitcoin pre-2012, which is highly unlikely unless you were incredibly well versed in finance, and cryptocurrency before cryptocurrency was a household name, then you could have made millions off of Bitcoin. However, Bitcoin along with other cryptocurrencies such as ripple, Ethereum, and Litecoin, are incredibly volatile, able to fluctuate 20% or more per day. Now as with my single stock suggestion, if you are truly obsessed with playing with cryptocurrency it is important that you have a consistent income, an already diversified portfolio, and that you treat this like it’s a trip to Vegas and give yourself a set budget that you will not go over. Because when investing in cryptocurrency you are gambling.
Avoiding Hysteria of Crowds
The last thing to avoid when attempting to make money in stocks is to guarantee that you spot hysteria in the stock market and avoid castles-in-the-air and thinking like the crowd as much as possible. If you hear from 100 different friends that there’s this great stock that everyone’s buying up it’s getting 100% returns per year and it sounds too good to be true, well the likelihood that it is too good to be true is extremely high.
I remember in 2017, after buying Bitcoin in 2014, I was in Uber on my way home from the airport. I was having a chat with the driver and he happened to mention Bitcoin and how I should be getting invested in it because everyone’s buying it up. I knew at that point I had to get out because I was in the middle of bubble, and if I didn’t get out soon then that bubble was going to pop on me and I was going to lose a ton of money. Sure enough, later that year Bitcoin jumped to nearly $20,000 per coin and then preceded to fall over the next year to just under $4000 per coin. Sure I got out a touch too early, but I had just escaped a bubble because of my cab driver.
The most important thing to remember when investing in any stock, commodity, cryptocurrency, or any other equity is to be smart and always be safe. Invest long term, make diversified investments, and when the entire market is down don’t follow the crowd, hold it until it goes back up.
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