How Can Be Making Money As A Stock Investor; Long And Short Term Strategy
Learning how to make money as a Stock Investor's a good move; the stock market is one of the best ways to build wealth. And there are so many ways you can benefit from investing in stocks.
But with great potential reward comes great risk, especially if you want to get rich quick. If you plan to try short-term or aggressive market strategies, you risk losing some or even all of your investable funds.
What Is A Stock Investment And Its Purposes?
The stock market has two very important purposes. The first is to provide companies with capital to finance and grow their businesses. The secondary purpose of the stock market is to allow investors like YOU who buy shares to participate in the profits of publicly traded companies.
Investors can benefit from buying shares in two ways. Some stocks pay regular dividends. The other way investors can benefit from buying shares is to sell their shares at a profit when the share price rises relative to the purchase price.
For example, if an investor buys shares of a company at $10 per share and the share price rises to $15 per share, the investor can earn 50% of the investment by selling those shares.
Let's Look At Some Ways YOU Can Become An Investor Right Away.
Day Trade
If you are a proficient trader, becoming a day trader is probably the easiest way to make a quick buck in the stock market. A day trader moves in and out of stocks quickly in a day, sometimes making multiple trades in the same security on the same day.
For investors with a good understanding of market trends and the ability to predict or decipher the financial results of specific companies, there is money to be made via day trading.
The average day trading investor, however, typically loses money. Anecdotal estimates suggest that up to 95% of day traders lose money; worse yet, they continue day trading. There is money to be made as a day trader, but it is generally best left to the professionals. The caveat is that you learn day trading, and you're to go.
Sell Short
A short seller is a stake that the price of a stock will fall. Technically, a short seller borrows stock, sells it, then buys it back and returns it to the lender. The short seller makes a profit If the stock price has fallen between these two trades. But if the stock goes up, the short seller loses.
Short selling is like day trading, a fairly aggressive strategy in many ways. Because the market is in a strong long-term uptrend, a short seller must have compelling reasons to believe that a particular stock or index will fall.
Macroeconomic factors, an overvalued stock price, or a deteriorating business are reasons that can cause a stock to decline, but they are not guaranteed.
In a booming market, even overvalued or underperforming stocks can continue to rise. Like day trading, short selling can be profitable, but it takes a very smart or professional trader.
Over-The-Counter Stocks
Although names like Apple and Microsoft dominate financial news, there are plenty of stocks the average investor has probably never heard of that offer much greater opportunities for profit and loss.
OTC stocks, for example, are not traded on a public exchange and often sell for pennies a share. While many of these companies go bankrupt, they also offer speculators the opportunity to double their money in a short time due to rumors and innuendo.
However, be aware that there is a lot of hype and outright scams in the OTC markets, as they are full of sellers who inflate the price of shares so they can sell before prices crash.
Dabble In Meme Stocks
So-called meme stocks that have risen to prominence in recent years, such as AMC Entertainment and GameStop, have generated fantastic gains for some shareholders and devastating losses for others.
GameStop, for example, was up 400% in a single week in January 2021, while AMC Entertainment posted an unfathomable 1,183% gain for the entire year. However, they plummeted back to Earth, only to recently rebound in 2022 and are enjoying another surge.
Investing in these types of companies is not a sound long-term financial plan, and you certainly shouldn't devote a significant portion of your portfolio to them. Still, if you are looking for stocks that can make big moves in a relatively short period of time, these are areas to look into.
Earn Compound Interest
The main reason the stock market is such a tremendous wealth generator is the effect of compound interest. While you can make short-term gains in the stock market, it's actually safer to leave your money in the long-term market and let compound interest work its magic.
First of all, the longer you leave your money in the market, the less risk you take. While no one can predict what the market will do from year to year, the S&P 500 Index hasn't lost any money in any 20 years. That's an amazing statistic, given how volatile the market can be in the short term.
Making Money With Stocks: How Long Does It Take?
Your approach to the stocks market will largely determine the time it takes. Technically, you can make money on stocks in as little as 30 minutes or a couple of years. As the name suggests, day trading takes only one day to earn money. On the other hand, long-term trading lasts for at least a year invested in a stock.
In general, the more time you invest, the more money you can earn. Stocks do this through the power of compound interest, where interest income generates more income.
Each trading strategy has its own strengths and weaknesses. Day trading looks very attractive as you can make money quickly. However, the day trading strategy is also the riskiest trading in the world.
Think of stocks this way: if you bring $10,000 into the market and make 10% a year, taking your profits out every year, after 30 years, you will have a net profit of $30,000, or triple your money. But if you instead earn that Money at 10% interest each year, you'll end up with just under $200,000, or 20 times your money.
Conclusion
If you can keep your money in the market for years, your potential to build wealth is enormous. Despite multiple market downturns that have seen stocks drop 40% or more in a year, the average of all returns adds up to an average of 10% per year.
