How do you make money from stocks and shares? We will answer this and more in this post. On average, investors make around 10% from the stock market each year. This is much higher than you will earn with a savings account or even with government bonds. The problem is that only a few savvy investors make this 10%.
A lot of people see purchasing shares as a way to get rich quick and this is certainly not the case. There are other methods that you can use to make a quick return on your investment that are much better than the stock market. You need to know what you are doing when you are investing in stocks and shares and be prepared to invest for the long-term.
How do you Make Money from Stocks and Shares?
At the end of the day, there are only two ways that you can make money from stocks and shares:
- Dividends from the shares you own
- Capital appreciation of your shares
When you purchase shares, you may receive a dividend from them every 3 months, 6 months or annually. The amount of the dividend is based on the number of shares that you hold in the stock. If the price of the shares goes up then you will benefit from capital appreciation. If you sell your shares at the right time then you will make a profit on your original investment.
Stay Invested for the Long-Term
It is a mistake to see investing in shares as a short-term thing. You need to start early and consider your investment in shares as a way to build wealth for the long-term. There is no need for you to make a lot of trades. Some people are obsessed with share prices and will stare at their computer screen for hours on end to watch the market change.
When you invest for the long-term you should make more money in dividends and make gains from capital appreciation if you have invested in the right stocks. You need to follow a “buy and hold” strategy. One of the most successful investors in stocks and shares in the world is Warren Buffet. If buy and hold is the right thing for him it is the right thing for you.
What Stocks do you Invest in?
You will be investing in common stocks so you need to concentrate on a “total return” over the lifetime of your investments. When you make the right decision about this you can build a very valuable portfolio that will set you up for life. Here is what you should look for when choosing the right stocks:
- Identify those companies that are well-run and have a strong financial position. Check out their history as far as the practices with shareholders are concerned
- Once you have decided on a stock to invest in, hold the shares that you purchase for at least 5 years
When you choose the right stocks, you should find that the value of your shares will increase as time goes on. There are plenty of examples where this has worked for ordinary people that have started investing with small amounts of money.
Small Amounts leading to Larger Amounts
There are plenty of stories of ordinary people that started investing in shares with small amounts and built a very valuable portfolio over the years. A lady called Anne Scheiber started to invest with small amounts of money and 50 years later she had a portfolio worth around $22 million.
Another savvy investor, Grace Groner, invested just $60 in 1935 (about $1800 in today’s money) when she first started with stocks and shares. Her portfolio is worth around $7 million today. Both of these examples prove that it is possible to get started with a small amount of money and turn this into a fortune.
A lot of people think that they can beat the stock market by always buying and selling shares. This may work occasionally if you have enough capital to invest, but it is not a sound long-term strategy. It is much better to seek out well run and financed companies and buy their shares and hold them for a long time.
The Stock Market can be Risky
If you are serious about making money from stocks and shares then you need to accept that the value of your shares can go down as well as up. When you choose the right companies to invest in, any share price drops should just be a temporary issue. In the long run you will see the value of your shares increase.
Sometimes there are market bubbles and you may have the chance to make a large profit on your shares because the price has risen significantly. There have been many cases where share prices do not accurately reflect what a company is really worth.
We have answered the question “how do you make money from stocks and shares?” It is now time for you to decide how much you are willing to invest, and then do your homework to find the best possible stocks that will provide a good return on your investment over the long-term.