How to Make Money in Stocks [Investing in the Stock Market]

The stock market can be intimidating for many people who want to become successful investors.

It’s easy to get lost in the numbers, charts, brokerage services, and opinions expressed. Fortunately, it’s not as complicated as it seems.

This article will cover some of the basics to start investing with confidence. We will also discuss how to make money in stocks by investing in the stock market.

How to Begin Stock Market Investing

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The best way to start investing in the stock market is to open a brokerage account with an online broker.

An investment account with a brokerage is an account that you use to buy and sell stocks, mutual funds, and other securities.

What is a Stock?

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When you invest in a company’s stock, you buy a piece of that company. You become a shareholder, and as the company grows, so does your investment.

This ownership is one of the main reasons stocks are considered such a good investment – they have the potential to provide long-term growth.

You can make two primary types of investments in the stock market: buying and holding or short-term trading like swing trading and day trading.

When you utilize a buy-and-hold strategy, you invest for the long term. You will purchase stocks at a specific price and then hold onto them until prices rise.

Swing trading involves trading in or out of stocks over a short time horizon like days, weeks or months. Day trading is when you buy and sell stocks within the same day.

These types of investing require more knowledge about the stock market and tend to carry more risk.

How Do I Select a Brokerage Firm?

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When considering your preferred manner of stock investing, you need to consider the different types of brokers available. In the past, brokers split into two main types:

1. Full-service brokers: Brokers which provide a full range of services from assisting with an investment account, planning for retirement, helping with personal finance decisions and even executing your wishes to buy or sell a stock order.
2. Discount brokers: For many years, investing in the stock market required going through full-service brokers or your bank. Discount brokers didn’t rule the roost as they do now. These brokers allow you to get started by placing your own trades. This meant you held responsibility for knowing your risk tolerance, whether individual stocks represented the best choice for how you want to invest, and whether you wanted to buy and hold for the long term or instead choose to trade for short-term gains.

Today, smartphones have revolutionized how we interact with money, including ways to invest and make money in the stock market.

Some investors want to take an active approach, while others prefer a passive way to invest in individual stocks, ETFs or mutual funds.

Find the best stock trading app and platform for your needs by looking at the following list of brokerage account options.

Related: Best Investments for Roth IRA Accounts [Target High-Growth]

How to Make Money in Stocks [Investing in the Stock Market]

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The first step to making money in the stock market is to decide how much money you want to invest in the brokerage account you select.

This may not be easy to determine, but it is essential to be realistic.

It would help if you also thought about how long you plan on investing. Are you looking for the short-term, or do you want to stay invested for the long term?

There are a few different ways to make money in stocks. Dividends and capital gains are the most popular avenues to making money.

Cash dividends are payments companies make to their shareholders. These payments can come in cash or additional shares of the company’s stock.

Capital gains occur when you sell your shares for a higher price than you paid for them. This profit is taxable as income.

These methods can be profitable and help you build wealth, but it is essential to remember that investment risk is always involved.

You shouldn’t put money in that you need to live right now. Most sound financial advice will tell you to make sure you have your basic needs covered, as well as an emergency fund before you start investing.

If you have those things taken care of, it’s time to start investing. Let’s begin first with choosing to start investing with individual stocks.

Related: How to Get Rich Off Stocks [Steps to Invest in the Stock Market]

Start with Individual Stocks

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Many people start investing in the stock market by purchasing individual stocks. This can be a great way to learn about the market and see how stocks work. It is also an excellent way to make money if you are patient and do your stock research.

However, when you’re purchasing individual stocks, there are a few things to keep in mind:

Do your research

Ensure that you know what the company does and what its financials look like.

Don’t invest money that you cannot afford to lose.

This is especially important when starting. Past performance doesn’t always indicate future success. Many investors have lost the money they needed to live or pay rent.

Don’t let that be you! Be smart and don’t invest more money than you’re comfortable with.

Diversify your portfolio

Investing in only one or two companies can be risky. Spread your money out among several different stocks.

Be patient

Individual stocks may take time to increase in value, so don’t sell them just because they go down right after purchase. Different market forces affect stock prices.

As long as you do your stock research and analysis before purchasing particular stocks, you’ll be better able to weather the ups and downs of the market with confidence.

Related: Best Investments for Kids

Consider Index Funds

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If choosing individual stocks is too intimidating for you, consider purchasing an index fund instead.

What is an Index Fund?

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An index fund is a type of mutual fund or exchange-traded fund that tracks the performance of a specific stock market index. This means that the fund’s holdings have weightings according to the composition of the underlying index.

For example, an S&P 500 index fund would invest in stocks that make up the S&P 500. As a result, these funds provide investors with exposure to the entire market at a low cost.

Index funds are also passively managed, meaning that there is little turnover in the portfolio and no individual security selection.

What is a Mutual Fund?

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Mutual funds are a collection of stocks, bonds, or other assets that you can buy. In essence, they let you buy small pieces of many companies instead of just one at a time.

A mutual fund is run by an investment company that pools the money from many investors and invests it into various investment vehicles such as stocks or bonds on your behalf.

Mutual funds can be either actively managed or indexed, as described above.

What is an ETF?

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An ETF, or exchange-traded fund, is a security that tracks an index, a commodity, bonds, or a basket of assets like stocks.

An ETF trades on an exchange just like a stock does and can be bought and sold throughout the day. Many investors use ETFs to build a diversified portfolio without purchasing individual securities.

Many different ETFs are available, including those that track indexes such as the S&P 500 or the Nasdaq 100, commodities such as gold or oil, bonds, and even currencies. Some ETFs focus on specific sectors of the economy, while others offer broad-based exposure to the entire market.

You can even use an investment app to build a diversified portfolio of exchange-traded funds automatically through in-app financial advice, limiting the frequency with which you touch or attempt to manage your portfolio.

The Last Edge in Investing: Investing for the Long Term

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While day trading might seem exciting, especially if you have a high risk tolerance, consider that many successful investors prefer investing for the long term.

When you invest for the long term, you give your investments time to grow, which can lead to a higher return on your investment. Additionally, you don’t have to worry about short-term market fluctuations that can impact your portfolio when you invest for the long term.

For many people, frequent buying and selling lead to too much risk, so they prefer building wealth through long-term investing.

How to Pick Individual Stocks that Outperform

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While no one can predict with certainty which individual stocks will outpace the market in a given year, there are some basic principles that you can follow to increase your chances of success.

These include:

• investing only when the stock price is low relative to its intrinsic value
• buying small pieces of many companies rather than large stakes in just one or two names
• avoiding expensive and popular stocks (which tend not to outperform)
• having realistic expectations about future growth rates
• sometimes using stop-loss limits on investments.

Remember: No one has a crystal ball. Even the best investors will have some losses in their portfolios from time to time. So, make sure you have an appropriately long investment horizon and stay disciplined with your buying and selling strategies.

By following these simple guidelines, you can give yourself the best chance of earning superior returns from investing in individual stocks.

If you’re still feeling uncertain about getting started on your own, consider working with an investment advisor at a wealth management firm who can sift through market data and help guide you through the process.

Further, you can use investing apps for beginners to automate your purchase of index funds to hold for the long term.

Related: 13 Best Robinhood Alternatives [US & Non-US Trading Apps]

How to Make Money in Stocks

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If you want to make money with stocks, buy quality stocks that continue to perform and hold them for long periods.

Or, skip this criterion and buy low-cost index funds that compound over many, many years.

The key to making money in the stock market is holding quality investments for many years. You can improve this by having an awareness of common investor mistakes.

Consider using a stock picking service like the Motley Fool to add higher-risk, higher-return companies to your portfolio of index funds.

These individual companies can drive continued engagement with your portfolio, something that’s important to ensure it doesn’t run off the rails in terms of risk tolerance or asset allocation over time.

The Motley Fool stock advisor service provides investment advice that has potential to perform well and has a consistent history of outperformance for over two decades.

You could also use a robo-advisor to create a diversified portfolio and supplement it with individual stocks to improve long-term performance.

How to Find Individual Companies Worth Buying

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The best stock picking services consider all of the variables discussed above when making their selections to subscribers.

Have a look at two Motley Fool stock research services subscribed to by millions of investors over the years.

Either subscription makes for a great short-listing system to find good stocks worth investigating yourself—and possibly even buying for your portfolio for the long-term.

Both services recommend buying and holding for no less than five years, departing with some of the other swing trade alerts services people use to find short-term profit potential in the stock market.

Motley Fool Stock Advisor: Best for Buy-and-Hold Investors

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• Available: Sign up here
• Best for: Buy-and-hold growth investors
• Price: Discounted rate for the first year (shown below)

Motley Fool’s signature product, Stock Advisor, aims to provide investors with one thing: top picks for market-beating stocks from the site’s co-founders.

Stock Advisor is an online investment service that espouses my favorite, plain-vanilla trading style: buy-and-hold. Fool analysts provide recommendations for both “Steady Eddies” and potential high-flying stocks with sound fundamentals—an ideal combination of holdings if you want to generate strong performance without risking extremely high volatility.

Importantly, Stock Advisor doesn’t just give you a list of tickers and call it a day—it also provides investment rationales and research for each pick to help educate you before you buy.

And now, Stock Advisor membership provides access to Motley Fool GamePlan: a hub for retirement and financial planning content and tools to improve not just your portfolio, but your entire financial life. GamePlan outlines three portfolio strategies—Cautious, Moderate, and Aggressive—with picks for mutual funds, exchange-traded funds (ETFs), and stocks, including allocation recommendations. It also hosts a library of content about financial planning, including topics such as everyday finances, health and wellness, and estate planning. And it boasts tools including a variety of calculators, such as credit card interest and mortgage calculators.

How has Motley Fool Stock Advisor performed?

Stock Advisor stock picks have performed exceptionally well over the service’s 22-year existence. The service has made 190 stock recommendations that have historically delivered 100%+ returns.

Overall, the Motley Fool Stock Advisor stock subscription service has returned 740% through July 24, 2024, since its inception in February 2002. This number is calculated by averaging the return of all stock recommendations it has made over the past 22 years. Comparatively, the S&P 500 Index has returned 163% over that same time frame.

What to expect from Motley Fool Stock Advisor

The Motley Fool Stock Advisor service provides a lot of worthwhile resources to members:

1. “Foundational Stocks”: 10 stocks that can serve as the foundation of your portfolio, whether you’re a new investor or experienced
2. Two new stock picks each month
3. Monthly analyst rankings of the service’s top 10 stocks based on their potential to beat the market over a five-year span
4. A list of all the service’s active picks, “hold” recommendations, and closed positions
5. Recommendations for stock and fixed-income exchange-traded funds (ETFs) you can use to build a diversified portfolio core
6. Access to the GamePlan financial planning hub
7. Access to Fool IQ, which provides essential financial data and news summaries about all U.S.-listed publicly traded stocks
8. Access to a community of investors engaged in outperforming the market and talking shop

The service charges a discounted rate for the first year and has a 30-day membership-fee-back period. Read more in our Motley Fool Stock Advisor review, or sign up for Stock Advisor today.

Related: 10 Best Non-Stock Investments [Alternatives to the Stock Market

Motley Fool Rule Breakers (Now Part of Epic): Best for Investors Looking for Growth Stocks

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• Available: Sign up here (must subscribe to Motley Fool Epic to get Rule Breakers)
• Best for: Investors who want growth-stock picks
• Price: Discounted price for the first year (shown below)

Motley Fool Rule Breakers, which is now an exclusive part of Motley Fool Epic, recommends stocks that the Rule Breakers team believes have massive growth potential. In some cases, these companies are at the forefront of emerging industries—in others, they’re disrupting the status quo in long-established industries.

This technology-centric portfolio isn’t about picking what’s popular now—it’s about looking for stocks that will eventually become the next big thing. That means these Motley Fool picks have the potential to be nauseatingly volatile … but also to rocket higher exponentially.

Rule Breakers’ team has six rules it follows before making stock recommendations to subscribers:

1. Only invest in “top dog” companies in an emerging industry. As Motley Fool puts it: “It doesn’t matter if you’re the big player in floppy drives—the industry is falling apart.”
2. The company must have a sustainable advantage.
3. The company must have strong past price appreciation.
4. The company needs to have strong and competent management.
5. There must be strong consumer appeal.
6. Financial media must overvalue the company.

In other words, Rule Breakers’ team considers a number of factors before it ever recommends a stock to its users. If it’s not a well-run company with a sustainable advantage over its competitors, and it’s not in an emerging industry, it probably won’t get past Rule Breakers’ velvet ropes.

What to expect from Motley Fool’s Rule Breakers

In addition to getting access to the whole Motley Fool Rule Breakers portfolio, you’ll receive one new stock pick every month (complete with full analysis and risk profile) and a ranking of the team’s 10 favorite picks out of Rule Breakers’ hundreds of recommendations.

And because you must subscribe to Epic to get Rule Breakers, you’ll also unlock:

• Stock Advisor: Buy-and-hold stock picks designed to deliver consistent performance with less volatility. You can also subscribe to Stock Advisor individually. 
• Hidden Gems: Stocks of medium-to-large businesses, selected by Fool CEO and co-founder Tom Gardner for their “all-in, visionary leadership teams.”
• Dividend Investor: Fool analysts target companies that deliver above-average yields and dividend growth, with the hope of producing both competitive total returns and an income stream that should carry you through retirement.
• Fool IQ+: An upgraded version of Stock Advisor’s Fool IQ. This tool provides detailed financial data, analysis, and news about all publicly traded, U.S.-listed stocks, as well as advanced charting options.
• GamePlan+: An upgraded version of Stock Advisor’s GamePlan. GamePlan is a hub of financial planning content and tools; GamePlan+ delivers a wider array of articles and tools, as well as more in-depth coverage.
• Epic Opportunities: A members-only podcast from Motley Fool.

You can get Epic at a discounted rate for your first year, and it has a 30-day membership-fee-back period. If you’re interested in Rule Breakers, you can learn more in our Epic review or sign up for Epic today.

Related: 7 Best Seeking Alpha Alternatives [Competitors’ Sites to Use]

What are Some Common Investor Mistakes?

1. Not Thinking Stock Prices Matter

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Investing money involves many components, but the chief among them is the concept of risk.

By introducing the idea that—in stark contrast to a bank account or banking app you may have—stocks act fundamentally different and involve variable levels of risk and return, you can begin to understand their benefits and drawbacks.

In short, stocks can classify as high-risk assets, but they can also serve as potential high-yield investments which provide appreciation potential.

Start first by understanding the value of a stock can go up and down, which depends on several factors. Most importantly, a stock’s performance depends on its growth prospects and its profitability.

But just having good marks in these areas doesn’t guarantee high returns because you can’t always predict risk in stocks.

For instance, many investors may find a company’s financial profile attractive enough to buy into the stock. This can result in an overpriced stock and make it difficult to justify future high returns.

As famous investor Howard Marks succinctly concludes, “It’s not what you buy—it’s what you pay.”

You should identify companies consistently performing well or making strides to improve.

I recommend starting by researching five companies you know well. Maybe it’s a company you admire or one you frequent as a customer. Make sure you choose these five companies in different industries. Learn about their culture, growth strategies, competitive advantages, and core values and products.

For these companies, focus on:

• what sets these companies apart from competitors
• whether or not they’re in a growing market or a declining market
• how the stock market values them

The last item remains vital as the asset doesn’t matter as much, but its price does when you buy stock.

You can buy an undervalued company for a great price and earn a significant return, while you can buy an overpriced company with a lot of PR and lose money.

The point is you should pay attention to the price companies trade for in the open market, as this will be the most significant predictor of your potential returns.

Pay too much and risk losing money or pay too little and extract some value the stock market didn’t assign the stock.

2. Letting Emotions Guide You

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Picking stocks can be a daunting task, but if you’re able to overcome emotions and stick to sound principles, it becomes much more manageable.

At one of his shareholder meetings, Warren Buffett famously said that his favorite holding period is “forever,” so buying quality businesses and holding them for the long term seems like a logical strategy.

However, this isn’t always easy because our emotions often get in the way of making rational decisions.

Fear and greed are two of the most powerful emotions for investing, and they can lead investors astray.

For example, imagine an investor who owns stock in a company only because it was “discovered” by a famous investor who happened to be buying it.

The stock price soars, and this individual cashes out his entire position, only for the “hot tip” company’s growth prospects to diminish after its hot streak ends.

This is an example of fear leading investors astray because they buy high and sell low—the opposite of what good investing requires.

3. Overestimating Confidence in Picking Stocks

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Overconfidence is the idea that unless an investor makes money every year on their portfolio, they have failed and aren’t good at investing.

This couldn’t be further from the truth because asset prices will always have ups and downs.

It’s important not to overestimate confidence or assume that markets won’t fluctuate yearly because they typically do.

Suppose investors stick with their investment plans, which typically involve taking some risk before reducing risk as retirement approaches by becoming less exposed to stocks.

In that case, there shouldn’t be much concern about short-term fluctuations along the way.

Although we covered how emotions can get in our way while investing, it is possible to remain disciplined when it comes to investing.

4. Confirmation Bias

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Confirmation bias is the tendency to seek out information that confirms your preexisting beliefs.

This can be a significant hindrance when making sound investment decisions because you may not consider all available information.

For example, imagine an investor who only reads bullish news articles about a particular stock and never considers any bearish perspectives.

This would lead to overconfidence in the investment and could eventually cause problems if the stock price declines.

Conversely, another investor might only read bearish news stories about a company and disregard anything positive.

Both of these situations illustrate how confirmation bias could lead to poor investment decisions, which is why it’s essential to seek out multiple sources of information about a stock.

5. Not Doing Your Due Diligence

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One of the biggest mistakes investors make is not doing their due diligence before buying a stock. This means researching the company and its management and understanding what the business does and how it makes money.

Just because someone you know is making money investing in a particular company doesn’t mean that you will too. Many people have lost a lot of money by trusting others to pick stocks for them.

It’s always important to do your research before buying any stock, no matter how good of a reputation the company may have. You never know when something might go wrong with the business or if the stock price has been artificially inflated (e.g., through insider trading).

Remember: Nobody cares more about your money than you do, so it’s always best to take an active interest in the investments made with your hard-earned cash.

Learn to Make Money in Stocks Today

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Although it’s normal to want things to go perfectly every time you invest money, investors need to remember that markets fluctuate from year-to-year. No one will always be right about which stocks perform the best or worst during different market conditions.

Suppose investors work hard at staying disciplined with their investment plans while also being open-minded enough to question their convictions. In that case, they can learn a considerable amount about investing over time.

In the end, it’s crucial for each individual investor to find what works best for them and not get wrapped up in what everyone else is doing.

There is no one-size-fits-all approach to investing, so experiment with different strategies until you find something that feels comfortable and gives you a sense of peace of mind. After all, if we’re not enjoying the process, then there’s a good chance that we won’t be sticking with it for very long.

So, have fun with it, try to avoid common mistakes, and learn as you go. If you do, you’ll be well on your way to learning how to make money in the stock market.

Related:

• How to Invest as a Teenager or Minor [Start Under 18 Years Old]
• Best Custodial Accounts: How to Start Investing for Your Child
• Investment Accounts for Kids [Custodial Brokerage Accounts]