In this guide on how to make money in the stock market for beginners, we’ll discuss what stocks are, and the best stocks to make money. We’ll also go over how much money you can make from stocks and the best way to invest and grow your money in the market. We’ll also touch on key lessons on stock investing like maximizing your time in market to help produce the highest returns.
When I was young, I was incredibly poor.
We had little to nothing… and we grew up living in other people’s basements — while my single-parent mother worked multiple jobs throughout the day so that she could provide for us.
And I deduced at that very young age, that in order to live and survive, I needed to work hard and earn more money — so that I could eventually become wealthy.
But what I didn’t know at that time, is that this is not how real wealth is made in country — and that those who are truly wealthy, didn’t become that way by earning an exorbitantly high wage in their 9-5 jobs.
No, they became wealthy because they knew how to live below their means and learned how to invest their surplus income into the stock market.
And once I also discovered the power of investing and began to put what I’ve learned into practice, my investments started to compound — and they now actually grow by around $4,000 per week, on their own.
This has multiplied my net worth over 15 times since I started making a full time corporate salary, over 18 years ago.
I’m not an accountant or financial advisor, but these last 2 decades of investing have built up this strong financial acumen within me — and I’ve learned some core lessons about the stock market and wealth building over the years that I’m happy to share with all of you.
These are lessons that I wish someone had taught me earlier, so that I could accelerate my wealth building and get to financial growth faster.
What is a Stock / Stock Market?
The very simple objective of wealth building in the stock market, is to have your investments grow and outpace the inflation rate, year over year — so that you can end up with more monetary value than you had before you entered the stock market.
This means that wherever you deploy your money, it has to be working just as hard as you are — to earn even more money, for you.
And in the stock market, that typically means buying stocks when they are lower in value and waiting until they are higher in value to sell them.
A stock is a share of ownership in a company — and when you own a stock, you typically make money in one of two ways.
First, you can buy a stock and if the stock price goes up over time, you can sell it for a profit of the difference.
Secondly, some stocks offer dividends — which is a distribution of a company’s corporate earnings to eligible shareholders. Not all companies offer this and the amount of the distribution varies each quarter, but for those that do, this is an extra bonus payment that you get, just for holding onto that particular stock.
Over the last 30 years, the stock market has returned an yearly average of 9.9%. So that means if you invest $5,000 a year, starting right now, in 30 years time (assuming a similar yearly return rate) your investment would have grown to almost $1 million dollars.
If you continued this for 10 more years, you would have over $2.7 million dollars.
Of course, you’ll always have periods of recession within those 30-40 years, so these return rates aren’t a guarantee — but in the long term the stock market generally appreciates at a steady rate.
Lesson 1: Time In Market
That’s why one of the first lessons in making money in the stock market is to invest as early as you can.
There is a saying that goes “Time in market is always better than trying to time the market.”
You see, you’ll never be able to accurately predict the best low, entry point in the market — or the best high, exit point in the stock market.
Even seasoned financial analysts only have about a 67.6% success rate when trying to time the market. But when you look across the performance of the stock market over a long period of 30-40 years, you can see that the results are always positive.
This means, no one that has held an investment in the stock market for that long, has ever lost money.
So it’s better to enter into a position early — and simply let your investment grow over time (through all the the ebbs and flows of the market) to build your wealth.
Lesson 2: Pick the Right Platform and Account Type
Now that we know the importance of investing and getting in early, the next question you might have is, “How do I actually invest in the stock market?”
Well, there are 2 things that are really critical to know here.
The first, is what platform you want to use to invest with. Nowadays there are so many options — from Etrade to Fidelity to Robinhood and many many others, that offer a clean looking UI and easy to utilize functionality. And to be honest, they all pretty much have the same capability when it comes to executing a stock trade.
So I would look at these three things to help me decide which one is right for me.
- Platform Stability: You want to make sure your platform doesn’t have frequent outages or technical issues that might interrupt your trading ability.
- Robust Research Tools: You want to make sure you have every bit of information you need when picking your investment vehicles.
- Responsive Customer Service: You want to know that your brokerage firm won’t leave you hanging, if you ever have a major issue.
My platform of choice, that fits all of these criteria, has always been Etrade.
This is purely my opinion (not sponsored by Etrade), but I’ve been with Etrade for over 15 years now, because I feel that their mobile app is always fast & responsive, especially when displaying live streaming stock quotes — and in my opinion, they have the best set of research tools, from robust fundamentals, to analyst price targets, to even Trefis Models that show how the business units of a company could affect their stock prices. I’d recommend checking them out — if you’re looking to get started on a new trading platform.
Type of Account
The next thing you want to keep in mind is what type of account you want to open.
There are many different types of investment accounts from 401ks to Roth IRAs to traditional brokerage accounts — all with different tax advantages and distribution rules.
It’s not feasible to go over all of these types of accounts in this one article, but here are links to my previous posts that dive deep into some of these accounts.
Lesson 3: Pick the Right Stocks
Once you have a platform and have opened up an investment account — the next thing to know is how to pick the right stocks to invest in.
This is a vast topic with many different strategies from assessing technical indicators to fundamental analysis — but for beginners, the easiest and most likely safest investment choice, is to go with a market tracking mutual fund or index fund.
The stock market is made up of many different company stock — and individually, they would all add up to tens of thousands of different stocks.
So to make it easier, there exists groupings of different stocks by many different categories.
There is a grouping for the different types of companies in the market — for example a group of tech companies, or a group of financial companies or a group or logistics companies.
And there are also groupings by sizes of companies — for example, a group of small publicly traded companies or a group of large multi-national companies.
There is a grouping for almost every type of category that you can think of — and these groups are represented by the different index or mutual funds out in the market.
A fund is basically a collection of stocks that align to a particular category or grouping — and when you buy a share of a fund, it lets you invest in that collection of companies in that category, as a whole.
And for beginners, the most straightforward funds that you can invest in, are those that track the overall stock market.
Simply put — these are collections of all of the companies that represent the US stock market as a whole.
This Forbes article has a great list of index funds that follow the general course of the total US stock market. So if you invest in one of these funds, if the total stock market goes up, these investments will go up as well, and if the total stock market goes down, these funds will go down with it.
I’d recommend looking at one of these to start with — that way you follow the trend of the overall market and you don’t have to worry about whether or not a particularly stock or company is doing well, for your investment to grow.
What you are essentially betting on, is the growth and future success of the total US economy and the companies that form the foundation of the US market. Not a bad bet to make in my opinion — but of course, I’m not a financial advisor, so you’ll have to be sure to do your own due diligence before you invest.
This was just a beginner’s crash course into the world of stock investing, but there is a lot more to go over regarding this topic, so make sure you also venture over to the Modern Finance category of my articles, here on Danielsbrew.com and check out some of my other posts on investing, if you want to become more knowledgeable in this area.
Learning how to invest can seem intimidating, but the key is to start small, take it step by step, and learn and grow into larger trading positions — as you become more comfortable with the risks and rewards of your investing approach.
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**** Disclaimer *****
The content here is strictly the opinion of Daniel’s Brew and is for entertainment purposes only. It should not be considered professional financial, investment, or career advice. Investing and career decisions are personal choices that each individual must make for themselves in accordance with their situation and long term plans. Daniel’s Brew will not be held liable for any outcome as a result of anyone following the opinions provided in this content.