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Written by: Guest Author/Investor
Stock trading is one of the best ways in the world to earn extra income, in my opinion. I love investing in the stock market. I’ve been investing for decades and have a reputation as being quite good at it. You can invest in the stock market successfully too.
In the short run, you may be able to earn a little extra money. In the long run, you may be able to earn a lot of extra money.
My hope is that this easy-to-understand article will shed some light on why stock market investing can be so much fun and how it can be a good source of extra income. Investing could be thought of as a sort of side gig for people who are willing to take some risk for greater returns.
Here is some insight into the risky, fun and potentially lucrative world of stock market trading and how the stock market can add to your freelance income.
How the Stock Market Can Add to Your Freelance Income
Basically, the more you learn about the stock market, the lower your risk of investing in it. Also, start small. Don’t throw all of your money into the stock market. Just nibble at it. Get the feel of it. Tiptoe in. See how it makes you feel to own shares in a stock or two.
Investing in the stock market is not for everyone. If you do want to try it, definitely do not invest more than you can afford. Be careful, but don’t let the risk scare you away.
The two main financial asset classes you can invest in are cash and stocks.
Cash is for people who cannot sleep at night because they are worried about the stock market. Stocks are for people who are worried that cash alone will not provide them with the long-term lifestyle they desire.
You may not think of cash as an investment, but it is.
Unless you keep your cash under your mattress, you’ll earn interest on it.
Put your cash in an interest-bearing bank account, and you’ll earn some interest. The interest rates today are close to zero, though, due to the pandemic, but you can find about 0.50% at some online banks.
Let’s say you have $1,000 to invest. You put it in an interest-bearing bank account. You would earn:
$5/year ($1,000 x 0.50% = $5)
Your risk of losing your original $1,000 is nearly zero. Your investment after one year would be $1,005 which is not a lot. For ultra conservative people, though, who want to have almost zero risk of losing even a dime, this is the answer.
When you own stocks, instead of earning interest you get paid a dividend. Unlike interest from a savings account, which is usually paid monthly, most companies pay dividends every three months.
There are two primary types of stocks: growth stocks and value stocks.
Growth stocks tend to pay lower dividends or no dividends at all. Value stocks tend to pay higher dividends, but the stock price tends to not go up as fast as growth stocks.
Let’s say you have $1,000 to invest and you find a stock – growth or value, it doesn’t matter – that is $100/share. You could buy 10 shares.
($1,000/$100 = 10 shares)
And let’s say the dividend is $1/share. The yield on the dividend (think of this as stock interest) is $1/$100 = 1%. You would earn $10.
(10 shares x $1/share = $10/year)
Your risk of losing part of your original $1,000 is never zero because, let’s face it, stocks can go down. The up side, though, is that you buy a stock that is so large, so well known, so popular, that even if it goes down a bit, it will eventually go back up.
You can also buy more shares when the stock goes on sale. This increases the amount of money you get in dividends because you will have more shares.
Stocks Can Increase in Value Over Time – a Lot
Stock market trading rarely makes anyone rich quickly. But over time, wise investments can earn you quite a lot of money.
Let me give you just one example of a stock I own. Starbucks.
Let’s say you bought just one share of Starbucks at the closing price on 12/31/20. It would cost you $106.98, and you would get paid a dividend of $1.80 per share. In one year you would have earned $1.80.
If you didn’t buy this share of Starbucks and instead kept the $106.98 in cash, earning .50% interest, in one year you would earn only $0.53.
($106.98 x 0.50% = .53)
For a look at what stocks can do in the long term, let’s say you bought Starbucks stock not on 12/31/20 but in April 1992. Back then, the price of Starbucks was $0.25 per share. If you invested $1,000 in this stock, you would have bought 4,000 shares.
$1,000/$0.25 = 4,000 shares
Starbucks is one stock that continued to perform well even during the pandemic and other stocks began failing. Why? Coffee is addictive. People simply went to their local Starbucks near their work-from-home office instead of their usual Starbucks on their commute to work.
On the day that I’m writing this, December 30, 2020, if you had never sold a single share of that Starbucks stock, your original $1,000 investment would now be worth…
$106.98/share x 4,000 shares = $427,920!
Remember, the whole time you owned this stock you would be receiving dividend payments also, which means you would have earned even more money.
While I do own Starbucks stock, I can only wish that I had bought $1,000 worth of shares in 1992!
Is the stock market risky? Yes. But wise investments can bring in some good money for a lot of people.
Remember Alta Vista, Ask Jeeves, Dogpile and MetaCrawler? If you’d sunk all of your money into buying the stocks in one of these search engines a couple of decades ago, you might have lost everything.
Someone who invested everything in Google stock, though, back in the early days, might be living on a yacht in the ocean now.
So what is hot today? Electric vehicles come to mind.
Tesla, for example. A few years ago, while people may have heard of Elon Musk’s company, investors avoided the stock. It was super high risk. Elon himself said the company was very close to bankruptcy.
If you’re interested, pull up a five- or ten-year stock chart of Tesla (TSLA). You’ll be amazed. This company went from nearly going out of business to becoming the largest electric vehicle company in the world.
TSLA stock is so high now that it is too risky for me personally. In one year it went from about $83/share to about $750/share. I say this one got away and it’s best to find something else. You may have heard the adage “buy low, sell high”. Well, this would be buy high, sell higher. Very risky. Not really a good move if you’re a beginning investor.
It is fun to buy stocks, but it’s wise to invest small amounts, especially as a beginner investor.
Maybe you buy $100 worth of stock. If your investment is in a company that then goes out of business, you will lose just a little. But, if you were to find the small, fast growing company that few have heard about and it keeps growing year after year, well, congratulations. You’ve now earned quite a bit of money. Please write and let me know how you did it.
If you decide you’re interested in buying a stock, first do some research on the stock or stocks you’re interested in as well as some research on the stock market itself so you’ll have an idea of what you’re doing.
One of my favorite stock market gurus is Jim Cramer of CNBC’s Mad Money. I watch him every night, as he gives out great advice, conducts insightful interviews with a lot of CEO’s and has also got a really fun, engaging personality.
To start investing, you can open a brokerage account. Many offer zero commission trading. You can buy as little as a single share or even less than a share.
There are so many different sectors to look at and invest in: technology, biotech, energy, utilities and so on. Each one has winners and losers.
There are stocks that are small now but could grow into the giants of tomorrow. This is the fun of investing. There are better odds of winning than buying a lottery ticket, that is for sure.
If you invest well, you can earn some extra money. If you invest very well, one day you may make more by investing than you do by working!