Investing in stocks is a good way to grow your wealth but pooling your capital at the right spot can be quite stressful. And this brings us to an important question for every individual investor.
How Can I Make Money in Stocks?
Well; it’s not difficult at all unless you practice the right approach. In this guideline, we have a list of 4 amazing strategies that will not only help you make money in stocks but also learn the art of high net worth investment. Also, you will learn how to stay longer in the stock market in good and bad times.
Let’s dive in
1. Buy and Hold
Making money from stocks is not always about buying and selling shares frequently. Sometimes, you have to wait for the right time to make a wise move. This strategy is known as “Buy & Hold”
As the name suggests, you buy some shares from the stock and hold them predicting a price peak in the coming days or time. Some of the world’s top investors believe that any type of investment has a perfect time of buying and selling.
This approach is mandatory for every investor. Why? Because someone who is buying and selling daily or monthly tends to miss the opportunity that would provide more returns than annual profit. If you are still confused about whether this strategy works or not, let’s consider a recent example:
A random investment company announces an annual return of 9.9% to its investors doing business with them for 15 years regularly. Being a retail investor, here are the consequences of your irregular activity in the market:
- Your annual return is 5% if you miss the 10 days
- Upon missing the best 20 days, you are likely to get a 2% annual return
- And being in ghost mode for 30 days results in an annual loss of 0.4%
This is a clear indication that growing wealth through stocks goes hand in hand with showing yourself every time in the market.
2. Choosing the Right Investment Account
No doubt choosing the right investment for a steady income is crucial but
selecting the right investment account is as important. This is because different investment accounts will have certain tax burdens on you. For instance, a Roth IRA is a retirement account that allows tax-free withdrawals for later.
Now it may sound amazing but there is a price for everything. While these accounts promise to provide tax-free withdraws there is a price for everything. You’ll be able to enjoy the tax-free withdrawal benefits from a Roth Retirement account only when you reach 59 years of age. Otherwise, you’ll be paying a 10% tax on early withdrawals.
However, in certain cases, there is an option of early tax-free withdrawal in case of medical emergencies. Investment accounts like 401K and IRAS allow you to withdraw money anytime you want without any additional tax, other than the standard ones.
How2invest is another good platform to chose your investments.
Such accounts are great in certain cases, like tax-loss harvesting, where you sell out losing stocks at low prices and getting some tax break to even your gains. To cut the story short, choosing the right account is important for optimizing individual investor’s wealth.
3. Think About Index Funds
Talk to any financial retail investor and they will tell you how diversification plays a key role in maximizing your gains and reducing risk factors. Understanding the business necessities, there is a famous English proverb that states “DON’T PUT ALL EGGS IN ONE BASKET”.
There are two types of investment in stocks:
- Individual Stock
- Mutual Funds or Index Funds
The former is about buying a particular share of the company while the latter is about adding multiple investments to the portfolio. Now we don’t say investing in a single stock won’t diversify your gains but since you’ll have one income source, the risk will be higher.
For this reason, experts recommend investing in multiple stocks, even small ones so that if things go wrong for one spot, you’ll have other eggs to eat and cover up the loss. For example, instead of investing all your money in Apple or Tesla, try investing in companies that have a good track record of predicting steady returns.
4. Reinvest Your Dividends
Sometimes, companies pay their investor an amount periodically based on their profits. You might call it an example of passive income but there are actually Dividends. Now at that time, this money may feel like utilizing for a family trip or buying a new car but experts have some other advice.
Top financial advisors recommend reinvesting your dividends, even if it’s a smaller one. Because this extra cash will help you stay active in the market and look for opportunities that are 10 times better than the regular ones.
Final Thoughts
So here’s the bottom line. Growing your wealth is no doubt one of the ideal options today but you don’t have to wait for days or months to make a move. Unless you are going for a buy-and-hold approach, it is better to stay active by investing even a little often.
No matter if you are a seasoned investor or a beginner, these tips will surely help you optimize your goals. Strategies like reinvesting your dividends and picking up mutual stocks will surely pay off over the long term.
