Your Questions About Good Money Making Stocks

David asks…

Which would be better to make money in, stocks or commoddities? which is riskier?

John answers:

Stocks are best because you can very easily diversify and cover a much wider spectrum of the economy. Diversification also reduces risk. They are very liquid and easy to buy and sell. You can also have a passive portfolio such as index ETFs where no work at all is required but the portfolio tracks the market in general.

Sharon asks…

How do stocks work and how can I make good money?

John answers:

Let’s talk about several possible approaches to stock market investing. The most popular and easy methods are buy-and-hold and dollar-cost-averaging. Buy-and-hold is well suited to long bull markets, where the average returns will always take you higher over the long term. Arguably, we haven’t seen a steady bull market for many years now. However, it’s always possible you might identify a winning stock, even when markets are down.
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Next is dollar cost averaging. To dollar-cost-average, you just buy regular dollar amounts of stock at regular intervals. This causes you to buy more when prices are down, and less when prices are up. Dollar cost averaging is actually a very mild form of market timing. More elaborate forms of market timing, based on technical analysis of stocks, are generally risky and difficult to perform.
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Sector investing is another easy-to-learn approach. Here you trade money between different sectors of the economy – i.e. Defense, housing, banking, technology, etc. This strategy requires a fair working knowledge of the economy.
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Next are professional market timing systems. These are increasingly popular computerized services that provide buy and sell signals to investors, managed either though a broker, or with a direct subscription. Some are risky and expensive (designed for day traders), while others are mild – providing only a trade or two per year for managing mutual funds or trading inside retirement accounts.
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This just scratches the surface, there are many other types and methods of choosing investments. Links with examples of the strategies discussed are below.

Susan asks…

Do you have to invest a lot of money in stocks to make a good profit?

i read stocks are for the rich, but if you have like 500 maybe a 1,000 dollars and invest it in diverified stocks for a long time(years), can it still make a great gain?(i know there is no absolute, but i hear people get rich from stocks, do you have to invest like 100,000 in order to make a lot of money from it?)

John answers:

The more money you can work with, the easier it gets. You get access to better deals from your broker, access to better fund, and the buy/sell transaction costs become less important.

Example:
you have a brokerage account where a transaction costs $10. Imagine you buy $500 worth of stock, and sell it later at a 10% increase (so for a $50 profit). But transaction costs eat up $20, leaving you with a $30 profit, which is only a 6% gain.

Now do the same with $5000, and you have a 9.6% gain. If you start with $50000, you would get a 9.96% gain. Of course, if you have that much value in your account your broker might give you a discount of transactions (or possibly make them free).

Some fund also minimum investment limits, eg, if I rmember correctly the minumum is $3000 for VIG.

Charles asks…

How many shares would you have to buy in order to make good money in the stock market?

You would need to invest many shares in order to make a good profit. So my question is, how do people make so much in the stock market when prices only fluctuate so little?

John answers:

Well, you can work for your money or your money could work for you. Theoretically, with stock investments, you are investing in the efforts of others to improve the value of your investment so your money is working for you and if your investment choices were appropriate requires very little of your time. It may not be much but it’s scalable, the more you make and invest, the more you’ll make. The same isn’t true with say your job, you can’t work more than 24 hours in a day period even if you could have all the overtime that you ask for.

Laura asks…

Does anyone think trading volatile stocks is a good strategy to make money in a short period of time?

I will use technical anaylsis to frame my trades, I just want some opinions. I would also like answers from people with this kind of experience.

John answers:

Trading in volatile markets are the BEST way to make money in the markets. Mainly, because that is when the markets trends best. With more traders reacting to the market, which causes the volatility, it makes highly probable trading situations to play out exactly how we expect them to. For example, lets say we are long on a trade. If we see an bullish ascending triangle, with large volatility and with other aspects of proper technical analysis, we can suspect that pattern that this pattern is likely to play out in our favor. Therefore, we can plan a proper entry and possible profit from the position.

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