If you really want to save for retirement or get rich without working a 9 to 5 job, you need to invest in the stock market. A smart investor carries a diversified portfolio wherein he carries fixed income financial instruments as well as a large share of equities. This helps him in receiving great return on his investment, while maintaining a safe cushion, in case of any contingencies.
If you are interested in earning great returns that beat inflation, check out the top 3 ways you can make money in the stock markets.
These stocks focus more on providing dividend yields to the investors. They distribute their profits in the form of dividends regularly to the shareholders. Such companies often have a very high profitability and distribute these profits on a quarterly basis.
However, high profitability doesn’t mean high dividend per share. You cannot hold 10 stocks of a company and expect a decent payout every quarter. Instead, buy larger quantities of these shares to enjoy a good income.
A share that distributes $0.50 dividend per share will bring only $5 per quarter. However, 100 shares will bring $50. If you have 1000 shares, expect $5000.
When you are buying income shares, you worried less about the stock price and more about the company’s profitability. More profits=higher incomes.
These stocks belong to companies that have tremendous growth potential. Whatever price they are selling at, brings a great bargain for the investor. As the company grows, the investors hold on to it for 1 to 3 years, kicking in capital gains. These stocks can then be sold at a major profit.
Growth stocks can be highly volatile as well. This means that you could earn a profit by buying and selling stocks quickly. This will not account for capital gains but bring a decent profit your way. Ideally, a growth stock could spend longer times on your portfolio, if the current market volatility trading isn’t a part of your strategy. They often bring the highest profits to the investors but do not promise a consistent income.
If diversification is your goal, then stock funds will be better for you. Ideally, 5 to 10% of your portfolio can be dedicated to these stock funds. Mutual funds and ETFs are part of these funds. Instead of you directly investing your money into various stocks, an asset manager does the job for you.
The returns on these funds are generally as good as the underlying security. However, risks are generally minimized by diversification.
Stocks funds are great for small investors. It could be difficult to buy high earning shares on the market with less than $1,000 to invest. With stock funds, you could reap the rewards of multiple stock holdings. Of course, not all stocks in the holding perform well but you usually average out the gains and losses over multiple dips and rises in the market easily.
The principals of investing in stocks is simple. Buy into great companies, design a clear strategy and wait for the right time to exit.