How To Make Money On Stocks

Among the available investment possibilities, stocks are one of the most enticing for most people, and with good reason. Stocks are very easy to buy and sell, creating a liquid market that makes them almost as easy to use as cash.

Also, while buying stocks you are taking part on the prosperity of corporate America, the area of this country that has the biggest economic impact in the world.

Buying stocks is looks easy at the beginning, but it has many traps that may cost a lot o money to investors. Many people start investing in stocks, and soon discover that they are not making any money. Subsequently, they just quit or take an easy approach such as using mutual funds (which, while not the worst investment out there, will cost thousands of dollars in unnecessary commissions).

In order to buy stocks with confidence, it is necessary to have a clear idea of what are the goals and time horizon of the investment. Many investors start their investment decisions without a clear idea of what these parameters are. For example, some people starting investing in the short term, only to have losses and convert the investment to long term. This is a losing proposition, because stocks that make short term investments are not good vehicles for long term investment.

As a rule of thumb, stocks that provide advantages in the long term have a few characteristics:

  • are stable companies, in the sense that they have a clear money making strategy.
  • are big enough so that they can sustain the bad moments that the market sometimes goes through
  • has excellent finances, exactly to support the downturns in the economy.

There are several companies that satisfy these requirements. Many of these companies are part of major indices, such as Dow Jones and S&P500. Companies such as IBM, Coca-cola, AT&T, GE, Microsoft, and P&G have withstood the test of time, and are very safe investments. The only thing we have to be careful is that we need to diversify among these companies to avoid problems in an specific segment of the market or a specific company.

Short Term InvestmentĀ Opportunities

On the other hand, some stocks are better positioned as short-term investment vehicles. Among these, we can think of companies that have possible upsides that are uncertain, such as mining companies, pharmaceutical companies, and some technology companies. Also, big companies that are going through economical problems can sometimes be traded in the short term. The common theme for these companies is that the stock price fluctuates more than normal. Therefore, it is easier to make money on the short term changes in the market.

Finally, there are some companies that, although small, can be seen as a long term investment. These, however, are still risky investments, and should be attempted only with a relatively small part of one's portfolio. These are growth companies, that have the perspective of huge gains in the future, but that are still in an early cycle of development. Most technology companies start this way, and will either become big companies, being acquired, or eventually fail.

Conclusion

When investing in stocks, there are many ways to define the term for the investment. If you start you journey as an investor, you need to define the duration of your investments, and buy stocks that match your time frame.

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