Congratulations! You are looking to invest in the stock market, one of the most liberating actions you can make with your money. By understanding the market and knowing how to properly manage the right percentage of money you have stored away, you can become not only a big investor, but a smart consumer.
Why You Should Invest
- It’s another stream of income: having a job is great but today’s modern economists know that in order to truly generate wealth, you need more than one stream of income.
- Residual income: This is income that you receive from work that you have previously done, but money continues to come in such as royalties from a song, real estate, or, a stock that you bought that continues to grow and pays you dividends (see below).
- Spare change can go a long way: you don’t need 5 million to make significant strides in the market, a starting balance between $50-$100 and persistence can take you a long way.
- You have support: Once you are subscribed to our blog, you are apart of our team, and it is our honor to give you insight that can take your portfolio to the next level.
- Make your money work for you: If your entire life is based on you working to make money, you’ll never see the financial freedom you want. Every successful individual says; “Make your money work for you, don’t work for money”.
To understand how beneficial investing can be for you, we have scripted out an investment scenario for John Doe, an 18 year old that just graduated high school and is ready to put $1000 dollars in the stock market:
Investing Put Into Perspective
After a very successful graduation party, John Doe feels like it is time to let his money work for him. He has been watching a stock for a long time with the ticker symbol XYZ, that is currently priced at $100. John believes that the stock will beat the usual stock return average of 8%, and go up 10% every year. John feels so good, he is willing to put all of his $1000 into XYZ, sure that the company is bound to take off.
Since 1 share of XYZ is equal to $100, John has just enough to buy exactly 10 shares. Luckily for John, XYZ really rewards their shareholders, and pays them a 5% dividend yield. This means that at the end of the year, the company gives you an additional 5% of whatever their share price is for you to do with as you please (reinvest it)! The payments split up into the four quarters of the fiscal year, but once the four quarters are over you will have a total of 5% of the share price multiplied by the number of shares you own.
For the sake of argument, let’s say stock XYZ climbs to $110 by the time John’s fourth dividend comes around. He was right, it has gone up 10%. This would mean that John has made $55 in dividend payments for his year. But also, the profit of his position is up $100 since the stock climbed $10 and he owns 10 shares, not bad for only year one.
If John really trusts XYZ he will reinvest his profit to gain more shares, because he is aware that if XYZ continues to have success, they will most likely increase their dividend. Theoretically, even if the share price never moves, John will still be comfortably collecting his dividend, but we are gonna hope that XYZ takes off to the moon.
Trading Platforms*
- E*Trade: E*Trade takes some getting used to initially but it is great for its top notch market research design and making trades all in one platform. All while having comparatively low commission rates. E*Trade does lag sometimes, especially when volume increases.
- Robinhood: Robinhood is known to treat people that are new to the stock market very well with its easy to use interface. Combining our guidance with the guidance of Robinhood will ease you into the world of trading very nicely. However, it is not good for analyzing charts and technical analysis, competitors easily beat them in this aspect.
- TD Ameritrade: The Common Trader writer TJ Brescia is an advocate for the charting software provided through TD Ameritrade known as Think or Swim. Being able to understand the chart of a stock can help you understand when to make a trade regardless of the news concerning the stock. Think or Swim does lag sometimes like E*Trade, and the platform can be very hard to use at first.
- M1 Finance: This platform is meant for long term investment accounts. IRA’s, 401K’s, individuals, etc. The ease of use and the ability to buy fractional shares makes investing easy. Their research platform is also excellent in providing relevant information. TJ uses this for his ROTH IRA and induvial accounts.
There are many other great platforms out there! If you have questions on another, ask us!
*Each platform listed has a link to each site’s home page, for direct access to creating an account today!
The Common Trader 