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how to make money in stocks audiobook
how to make money in stocks audiobook

Buy and hold

A phrase famous in the world of long-time investors says: "Time in the market beats timing the market."

What exactly does this be? In short, one popular method of making money in stocks is to employ an investment strategy known as buy-and-hold, in which you own the stocks or other securities for some time instead of constantly trading and buying (a.k.a. trading).

It's crucial because investors who regularly trade within and out of the market daily, weekly, or monthly are likely not to take advantage of opportunities for a reasonable annual return.

Think about this: The S&P/ASX200 Index earned an average return of 9.3 percent per year over ten years, per the S&P Dow Jones Indices, 2021. However, if you traded both in and out of this market, you risked your chance of getting the same returns, as trading out of the market on the best days means significantly fewer returns.

While the most straightforward solution might be to ensure that you're investing in those times, it's challenging to know what they'll be like. There are times when days of high performance come after days of massive drops but times they don't. There's no assurance.

It is essential to remain invested over the long term to ensure that you get the market at its peak. A buy-and-hold strategy will help you reach this objective. (It will also assist you with tax preparation by allowing you to claim reduced capital gains tax rates.)

Choose to invest in funds instead of individual Stocks.

The most experienced investors understand that a tried and true investment practice known as diversification is crucial to reducing risk and increasing return over time. Consider it an investment equivalent to putting only some of your eggs into one basket.

However, most investors are drawn to two types of investments--individual stocks and stock funds such as mutual funds and exchange-traded funds ( ETFs)--experts typically suggest the latter for maximum benefit. Your diversification.

Although it is possible to purchase various individual stocks to replicate the diversity you get within funds, this does require time, a significant amount of investment savvy, and a substantial amount of cash to accomplish this effectively. For instance, a single portion of one stock can run thousands of dollars.

On the other hand, funds can offer the possibility of buying exposure to hundreds (or thousands) of investments in a single just one share. Although everyone would like to put all funds into Google (GOOGL) or Amazon (AMZN), the truth is that most investors, including professionals, need to establish a long-lasting track record of knowing the companies that will provide huge yields.

Experts recommend investing in funds that track passively important indexes like the ASX200. You can benefit from the roughly 10% annual average returns that the markets generate as simply (and inexpensively) as possible.

Reinvest your Dividends

Many companies give their shareholders dividends, a monthly payment based on their earnings.

The small amount you receive in dividends might seem small initially, particularly when you begin investing, but they're the reason for the bulk of the market's historical expansion.

For instance, in the US, between September 1921 and September 2021, the S&P 500 had an average annual return of 6.7 percent. If dividends were reinvested, however, the proportion jumped to nearly 11 percent. The reason is that every dividend that you reinvests buys additional shares. This makes the earnings compound faster.

The higher compounding rate is one reason financial advisors advise long-term investors to invest their dividends instead of investing in them after receiving the payouts. Most brokerage firms offer the option of automatically investing your dividends when you sign to the dividend reinvestment program or DRIP.

The Bottom Line

If you're hoping to earn profit from the stock market, it's okay to speculate on how stocks of companies will be able to go up or down in the near term. Even best-performing investors, such as Warren Buffett, recommend people put their money into index funds with low costs and then hold them for years or for a long time until they need them.

Unfortunately, the tried and tested method to succeed in investing is boring. Just be patient and know that diversifying investments, such as index funds, will yield dividends in the long run instead of trying to find the latest trending stock.

Be aware that you could lose a portion, and sometimes all, of your investment. Past performance does not guarantee future results, and this piece is not meant to be a recommendation for any specific investment strategy, asset class, or product.