How can we make money from the stock market?
“Well, buy a stock at price A, hope it goes to price A+20% (or whatever price that is higher than A which you prefer), sell stocks and make that amount in profits”
Yes, buy low, sell high or buy high, sell higher – in other words capital gain, is one way to make money from the stock market but it is not the only way.
I have divided the methods of making money from the stock market into two (2) broad categories: the direct methods and the indirect methods. You will find a graphic summary of these methods at the bottom of this post – but do read this article first, which I hope will be of benefit to you and I, rather than scrolling right down 🙂
A short tangent from the main topic (you may skip the paragraphs between the two lines if you don’t like digressions) –
Some people will label financial educators as fakes if they make more – or in fact most – of their wealth from their paid services or website/youtube ads rather than from trading.
While I do believe that it is irresponsible to claim that ones buy/sell signal services are better than others or that ones paid indicator is a sure way to make xxx% returns in one night for the reason that it can be very misleading to people new to the market; I will however have to respectfully disagree that financial educators are fakes.
Did you know that the doctors treating you in the hospitals when you get ill were likely taught by medical educators who are not the best (or even exceptionally good) at their specialisations? Would you then say that most doctors were trained at a substandard level? Medical educators are not necessarily the best in terms of skills but they are good at teaching younger doctors to be great at what they come to do.
In a similar respect, financial educators need not necessarily be the best traders or investors out there, or even make tonnes of money from their trading to be great financial educators.
Making money from sharing ones knowledge and research is a legitimate way to make a living – especially now days where we can do this without charging the people who we are sharing our intellectual property with.
Some people are just geniuses at teaching others, surely we have all come across such individuals in our lives (I’ve come across several). They make it so easy for others to grasp the lesson but come the exams, some of them don’t do so great but the people they taught will swear that they aced the exams because of that guys free lessons.
…and my digression brings us to the second way of making money from the stock market other than capital gains
No.2 Paid services
One ‘indirect’ way of making money from the stock market (Indirect as in not requiring you to trade/invest directly) is from selling paid services.
What can you sell to ‘make money from the stock market’?
- Personal coaching
- Buy/sell calls
- Trading tools (trading algorithm, technical indicators)
If you are good at teaching, you may create udemy courses for example. Does it take ‘the best’ or ‘the most successful’ trader to make a great and beneficial course? Surely we all know the answer in this age where many of us have grown learning from youtube videos and personal blogs.
No.3 Ad supported services
Ok, just to be clear, this is our (the netflyp teams) business model, so you can choose to think we might be a tad biased 🙂
I’ll have to admit, ads are annoying. But when you think about it, isn’t this business model a win-win for everyone?
Best of all of course is the consumers. We get to watch free youtube videos, listen to free spotify music and take in essentially all the current knowledge of the human race (which might otherwise cost a huge fortune in the form of books) for FREE!
Ad supported learning and FREE services websites is another way of making money from the stock market.
You must have realised that there are a number of ads on netflyp.com. This is one way we support our work while keeping our contents and services totally FREE.
Another way we (and many other free services/products producers) use to keep our products FREE is by using adf.ly services for our downloads such as the ones found on posts like Week 3 February 2020 US Market Analysis
For those who need an introduction to adf.ly, when you click the downloads in the post above, you must have realised that you were temporarily taken to an external page. This is the adf.ly advertisement page. After the countdown finishes and you click ‘skip ad’ and then ‘allow’, your download automatically begins and you are taken back to the original download page.
If you’ve downloaded content on the internet before, you must have realised that many of the providers use this same service. Adf.ly is not a virus or malware, it is a legitimate way of monetising content for businesses that wish to keep their products free but still make a living from it and is used by millions of content and service providers.
With this, hopefully we can all be more supportive of this new way of doing business. I’m sure that I am not the only one who notices the very obvious increase in ads on youtube and spotify and most FREE games?
*Just an early heads up, we will be using adf.ly services for the external links in the Further Reading section at the bottom of this post. Internal links to other pages/posts on netflyp will not use adf.ly. We hope you find the links beneficial and can support our work 🙂 🙂 🙂 *
This is the second of the ‘direct’ methods of making money from the stock market.
I am personally mainly a dividend investor, although I have a diversified portfolio made up of dividend paying and non-dividend paying stocks, so again I may be a bit biased.
If you are an investor planning on holding a stock for many years – or even forever – dividends can be another way to make money from the stock market.
I also find that dividends are a good tool to manage our psychology.
How does it do this? :-
The stock market does not go up in a straight line. Yes, we can make an analysis like this for example:
… and predict that prices could go from 132 to 170. However as in this example, it went sideways for a few months before actually going up. A few months that could be quite a challenging wait for some. At least it didn’t take a nosedive like this:
Not many would be able to take this 30% or so erosion in their investments value. And had we panicked and sold our stocks at the time, we’d have missed out on the massive rally that followed.
Of course, selling could have saved our investment value had something like this happened instead:
But this is a discussion for another post (We had a look through this perspective in the analysis of Facebook HERE)
True, a 3-7% or so annual dividend is not going to cover a 30% drop in value. But it is free cash flow and free money that you get regularly at pretty much a predictable interval (usually once every quarter – three monthly – or once or twice a year. Some pay monthly) and can use to compound your wealth over time, and dollar cost average your stock price.
And here is something that may sway you to try out dividend investing as part of your investment portfolio:
Initial investment: 10K
Annual dividend: 5%
Time period: 20 years (240 months)
* I have included a link to the above Investment Calculator in the Further Reading section below if you want to do some calculations for yourself. It definitely got me interested in dividend investing and compounding dividends.
At the end of the 20 years, your initial 10K will now be worth 26.5K. If the annual dividend remains at 5%, your dividend in year 21 will be 1325, which is a 13.25% dividend yield of your 10K investment (since you didn’t add a single penny after that initial 10K. 2/3 of the 26.5K is from reinvested dividends! You didn’t even have to do anything to get it).
No.5 Selling options
No.6 Buying options
No.7 Trading options spread
*Massive disclaimer: Selling and buying options is very very very RISKY. You may lose much much much more than your initial capital. So DO NOT attempt it until you have a good idea of how it works and how to utilise it as an investment.
No.5, No.6 and No.7 are all related to utilising the investment/trading vehicle called options. I have separated them rather than just saying ‘options’ because their risk:reward profiles and trading methodology vary rather widely.
They should not be approached lightly and never treated equally although all of them use the same vehicle called options. If you are interested, you should study each of these vehicles individually.
A quick FYI, Buying Options has limited risks. Meaning you can never lose more than the money you have invested. Selling Options on the other hand exposes you to the risk of losing far more than your initial investment. You can lose everything and then some more – or a lot more. If you are not careful, it could really ruin you.
Of course, it’s not so straight forward and simple as this but a discourse on options is not within the scope of this particular article.
Suffice to say that using options is another way we can make money from the stock market other than buying the stocks outright.
If you are interested in options, I strongly urge you to thoroughly research it and better still, find a mentor or a team of options traders to learn and trade with. It is generally more risky than buying stocks.
*Options Resources in the Further Reading section below include some of the options lessons that I have learned from and found to be the most beneficial (and not just some ad trying to coax us into 4 or 5 figure classes or paid services that may or may not be useful to first timers).
No.8 Short selling
No.1 Capital gains
Ok so these should have been No.1 and No.2 but I purposely placed them last as these are probably the most obvious and the least interesting ways of making money with the stock market.
Anyway, capital gains is making a profit from the difference between the price we bought a stock and the price we sell it for. Pretty straight forward.
Short selling a stock is kind of the opposite. You sell a stock first at the current price say B because you think it will go down in value say B-20%. If it does go down to B-20%, you then ‘buy to cover’ at the 20% discount from the price you initially short sold it, thus making this 20% in profit.
These are 8 ways that we can use to make money from the stock market. Below are resources that I have used to study some of the methods above and found to be most useful. The external links marked with * use adf.ly short links to help maintain this site. Your support is most appreciated 🙂
- Make money from your social media posts and links with adf.ly – this is my referral link 🙂
- Monetise your website with adsterra – it would be great if you use our referral link 🙂
- * Learn more about adf.ly and how you can make passive income with it
- * Great financial calculators for every purpose
- * One of the best resources for dividend investing in my opinion
- * The place I learned dividend investing
- * One of the best explanation of technical analysis
- * Easy to understand explanation of options and options trading strategies
- * One of my main references for learning options trading