How to Make Money in the Stock Market (Step-by-Step Guide)

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the millennial money woman blog post how to make money in the stock market step-by-step guide

In this guide I’m going to show you exactly how to make money in the stock market.

In fact, using the same techniques I’ve listed in this post, I have personally made over $17,000 in the span of a few months following the March 2020 stock market flash crash.

And in this article, I’m giving you my exclusive step-by-step guide explaining exactly how I made money in the stock market and how you can too.

Let’s dive right in.

Sneak Peek: Best Investment Platforms

Best Investment App for Beginners: Acorns

MMW Rating
4.9/5

Best Robo-Advisor Investment App: M1 Finance

MMW Rating
4.8/5

Best Social Investment App: Public

MMW Rating
4.7/5

It only takes between 10 to 15 minutes to set up your account and start earning money.

What is the Stock Market?


Before we go in-depth and discuss the steps on how to make money in the stock market, let’s make sure to understand what the stock market is.

Below are some common characteristics of stocks (the shares of a company you buy):

  • Company ownership
  • Ability to vote on company issues
  • Capability to receive dividend payouts
  • Generally, higher rates of return than bonds

On average, over the past 50 years, you could have made somewhere around a 7% return – if you stayed invested through the good and the bad times. 

The majority of folks who decide to go down the road of day trading typically don’t make money, so if you’re not an experienced and well-versed investor, it might be a good idea to stick to index investing.

To be honest, my favorite type of investing strategy is index investing because it is hands-off, automatic, and stress-free: My investments do what the market does. 

To win, when you invest in the stock markets, 99% of the time, you’ll want to be:

  • Patient
  • Consistent
  • Focused on the long term

It’s not a secret that the “buy and hold” strategy has worked for the majority of investors – like Warren Buffet. 

It can – and likely will – for you too.

How to Make Money in the Stock Market (Step-by-Step Guide)

Are you ready to take part in the action?

Here’s my complete step-by-step guide on how to make money in the stock market:

Step #1: Determine if you’re Emotionally Ready


How often do you check the value of your home? Chances are, you probably don’t check your home’s value every day. 

So why would you check the value of your stock prices every day? 

With stocks, volatility is part of the game – and you’ll have to accept that.

In the short term:

  • You could lose money 
  • You could make money

In the long term:

  • You almost always make money

If you can’t handle the ups and downs of the stock market, then it’s not the right place for you. 

The worst thing you can do is buy because of FOMO (fear of missing out) when the stock market is high and sell out of fear when the stock market is low.

greed and fear by carl richards

Image: Carl Richards

The illustration above is an easy way to lose money.

So after you’ve determined that you’re emotionally ready to invest in the stock market, you can start creating and implementing an investing budget.

Step #2: Create an Investing Budget


The next step is to determine how much money you can set aside to invest daily, weekly, or monthly. 

You don’t need $100s or even $1,000s to start investing. 

In fact, with the Acorns investing app, all you need is $5 to start investing.

To determine how much you can invest, you need to figure out why you are investing in the first place:

  • Determine your financial goals
  • Determine your time frame
  • Determine your income

When it comes to investing, time equals money.

As you start your investing journey, make sure you consider your specific financial situation.

Situation Consideration

Work

Is your income stable enough to begin investing?

Debt

Do you have significant high-interest debt?

If yes, you may want to hold off on investing and instead get out of debt first
.

Family

- Did you just get married?

-
Did you just welcome a baby?

-
Are you about to go through a divorce?

-
Do you have an emergency savings fund?

Depending on your family situation, you may need larger cash reserves, so it might make sense to hold off investing for now.

Budget

Aim to invest between 20% to 30% of monthly income.

I can’t give you a direct and specific answer as it relates to how much money you should invest in the stock market.

However, I can give you a rule of thumb:

Investing Rule of Thumb

Percent of Income to invest in the stock market

20% to 30% of gross annual income

I know that investing 20% to 30% of your gross annual income is a chunk of money – probably a lot more than what other investing and finance gurus recommend.

Here’s my rationale: If you want to be above average, then you have to do what the average person won’t.

And that means if you want to grow and maintain your wealth, you’ll have to invest more because chances are the average person won’t invest 20% to 30% of their income.

Step #3: Determine your Investment Platform


If you want to invest in stocks, you’ll very likely need an investment account

There are several different ways you can invest in stocks, and I’ve listed out these investment platforms below:

  • Robo-advisors
  • Online brokers
  • Investment manager
  • Employer-sponsored retirement plans

I’ve created a neat chart for you, to compare the 4 common investment platform options below.

Robo-Advisor Online Broker Investment Manager Employer-Sponsored Retirement Plan

Minimum Investment

$0 to $100,000

$0 to $5,000 +

$100,000 to $1,000,000+

$0 to $100+

Fees

0.25% to 1% of your account value

0% to 2% of your account’s value + trading fees

1% to 2% of your account’s value + trading fees

0.05% to 2% of your investment options

Investment Knowledge Needed?

No

Yes – You need to be experienced

No

Limited

Can you Choose your Investments

Typically no

Yes

Yes – but typically your investment manager does so for you

Yes – But you’re limited to the investment options within your employer-sponsored plan

Investment advice offered?

Typically no

Typically, no.

Yes – you’ll receive the most customized investment advice

Typically no

Who Should Choose this?

New investors

Experienced investors

Investors with a lot of money who want customized advice

Anyone who is looking to get an employer matching contribution and a potential tax deduction

So, let me translate for you which investment platform would be your best bet, depending on your:

  • Investment knowledge
  • Investment amount
  • Need for guidance

I’ve carefully compiled a list of investment platforms below to give you some guidance as it relates to which platform might be your best bet:

Acorns M1 Finance Public Rocket Dollar Investment Manager Employer Retirement Plan

Investment knowledge needed?

No

No

No

Yes

No

Limited

Investment minimum

$5

$100

$0

$0

$100,000 to $1,000,000 or more

$0

Fees

$1 to $5 per month

$0

$0

$360 setup + $15 per month

1% to 2% of account value

0.01% to 2% - depends on fund options

Do you get investment guidance?

Yes

Yes

Limited

No

Yes – Customized

Limited

For the long term investor

No

Yes

Maybe

Yes

Yes

Maybe

For the risky investor

No

No

No

Yes

Yes

No

Honestly, if you’re new to the investing game and don’t have $100’s or $1,000’s to invest, then I’d say your best bet is Acorns.

Acorns offers:

  • Automatic investments
  • Educational content
  • Fractional investing

Below are a few more stats:

Acorns

Fees

$1 to $5 per month

Minimum Needed to Open Account

$0

Minimum Needed to Start Investing

$5

Available Accounts

  • SEP IRA
  • Roth IRA
  • Individual
  • Traditional IRA
  • UTMA / UGMA accounts for kids

Although the monthly fees could be a bit on the high side, if you’re terrible at saving and just want to find a way to start investing, then I’d say open an Acorns account and start your journey. 

On the other hand, if you have a little more spare cash but still want some guidance when it comes to managing your investments, you may want to consider the top-ranked robo-advisor investment platform, M1 Finance.

M1 Finance offers:

  • No trading fees
  • Fractional investing
  • Flexible portfolio building
  • Ability to trade individual stocks / ETFs

Below are a few more stats:

M1 Finance

Fees

$0

Minimum Needed to Open Account

$100

Minimum Needed to Start Investing

$100

Available Accounts

  • Joint 
  • SEP IRA 
  • Roth IRA
  • Individual
  • Traditional IRA
  • Trust Accounts 

If you are a:

  • Long-term investor
  • Want to grow your wealth
  • Want a low-cost investment platform

…Then M1 Finance is very likely the right investment platform for you.

Now, if you classify yourself as a social butterfly and love talking to social media influencers, and don’t mind that your investment options are public information, then you may want to consider opening an account with Public.com.

Public.com offers:

  • No trading fees
  • Fractional investing
  • No account minimums
  • Transparent and social community

Below are a few more stats:

Public

Fees

$0

Minimum Needed to Open Account

$0

Minimum Needed to Start Investing

$0

Available Accounts

  • Individual

When you set up your Public investor profile, anyone within the Public community can view your profile for ideas or inspiration.

If you’re someone who knows your stuff, wants to invest in a wide variety of options, and knows exactly what to look for, then you may want to consider opening a self-directed investment account with Rocket Dollar.

Rocket Dollar offers:

  • Easy set-up process
  • Competitive monthly fee
  • Self-directed retirement accounts
  • Option to invest in alternative assets

Below are a few more stats:

Rocket Dollar

Fees

$360 setup + $15 per month

Minimum Needed to Open Account

$0

Minimum Needed to Start Investing

$0

Available Accounts

  • Solo 401k
  • Self-directed IRA

If you are a business owner or someone who wants to open their own IRA but invest in other, possibly, riskier assets (this could include real estate for instance), then Rocket Dollar may be your best bet.

Of course, if you are an experienced investor, know what you’re looking for and simply want to open a regular IRA, individual account or joint account (just as an example), you can also just check out Vanguard, Fidelity, Charles Schwab, and the likes.

Fees could be a little on the higher side, depending on the type of investment you buy, and you may have higher investment minimums, but these companies are proven, stable and excellent ways to build and maintain your wealth if you’re an experienced investor.

Step #4: Select an Investment Account


After you’ve determined which investment platform you want to use, the next step is to determine which investment account you’ll open.

There are many types of investment accounts you could open, including:

  • Roth IRA
  • Traditional IRA
  • Joint taxable account
  • Individual taxable account

Just to name a few of the most common accounts.

Below are a few pointers to keep in mind when it comes to investing in the accounts I mentioned above.

Roth IRA Traditional IRA Joint Account Individual Account

Maximum Annual Investment

$6,000 under age 50

$7,000 age 50 and older

$6,000 under age 50

$7,000 age 50 and older

Unlimited

Unlimited

Pre Tax?

No

Yes

No

No

After Tax?

Yes

No

No

No

Can have a joint owner?

No

No

Yes

No

Restrictions on withdrawals?

Yes

Yes

No

No

Required Minimum Distributions at 72

No

Yes

No

No

Below is a glimpse into the account types that I have, and the reasons why:

Account I have Why I have it

Individual TOD Account

(TOD = Transfer on Death to my beneficiary, my husband)

Roth IRA

I expect to earn more in the future, so I am paying taxes on my contributions today so I won’t have to pay taxes on withdrawals tomorrow

Joint Account

This is a new investing account I recently opened with my husband and we are both investing in this account

If you’re new to the investing game, I’d suggest you check out my Roth IRA vs. Traditional IRA article to find out which retirement account could be the best option for you.

Below is some additional information for you:

Acorns M1 Finance Public Rocket Dollar

Individual Account

Yes

Yes

Yes

No

Joint Account

No

Yes

No

No

Traditional IRA

Yes

Yes

No

Yes

Roth IRA

No

Yes

No

Yes

SEP IRA

No

Yes

No

No

Trust Account

No

Yes

No

No

Solo 401(k)

No

No

No

Yes

Online brokerages like Vanguard, Charles Schwab and Fidelity almost always offer all account types for the individual investor. 

Just remember, to effectively utilize the resources of the online brokerage accounts, you should be an experienced investor.

Next, it’s time to determine what to invest in.

Step #5: Know the difference between stocks, ETFs, and mutual funds


Now that you’ve selected your investment platform and opened your investment account, it’s time to consider how you want to invest in the stock market. 

Below are some ways you can invest your money in the stock market:

  • Index funds
  • Mutual funds
  • Individual stocks
  • Exchange Traded Funds (ETFs)

Index funds are:

One thing to keep in mind is that you very likely will not outperform the index, since you are invested in the index itself.

You can invest in mutual funds and ETFs as well.

Mutual Funds ETFs

Buy/Sell during the day

No

Yes

Buy/Sell at the end of the day

Yes

No

Costs

Higher

Lower

Automatic investing

Yes

No

Essentially, mutual funds and ETFs are the same.

Check out the differences below.

the millennial money woman blog post infographic "mutual funds vs etfs"

The major difference is in how they trade.

ETFs trade like stocks, which is during the day.

Mutual funds, on the other hand, trade only at the end of the day.

I am invested in mutual funds, including FXAIX (an index mutual fund) and the expense ratio cost is very low.

However, if you’re just starting investing, a robo-advisor may be your go-to. 

If you decide to open an account with a robo-advisor, like with M1 Finance, you don’t have to pick a stock, the robo-advisor does the heavy lifting for you.

Step #6: Implement Dollar Cost Averaging Strategy


If you want to know how you can make money in the stock market, the answer is through the 
dollar cost averaging strategy (aka DCA strategy).

The DCA strategy helps you:

  • Invest over time
  • Invest consistently
  • Invest without stress

Here’s an example of my DCA strategy:

  • I like buying into the mutual index fund FXAIX (it tracks the S&P 500 index)
  • With my DCA strategy, I buy $1,000 worth of FXAIX every month
  • With DCA, my $1,000 are automatically invested in FXAIX

I don’t have to move a finger.

A common example of dollar cost averaging in action is when you contribute to your 401k plan every paycheck.

It’s automatic, it’s stress free and it gets the job done. 

The same goes for your DCA strategy to invest in the stock market.

Step #7: Keep a Long Term Mindset


In my opinion, there is no such thing as legally making a lot of money overnight.

Investing in the stock market to make money is going to take time – and lots of it. 

average time frame to hit 1 million dollar marker statistic

Image: The Millennial Money Woman | Source: Dave Ramsey

When you’re feeling frustrated and impatient because your stocks just don’t seem to be moving in the right direction (up), take a step back and remember that it takes time to accomplish success

To be successful in the stock market, consider taking the Warren Buffet approach:

  • Invest over time
  • Invest consistently 
  • Invest in low-cost index funds

Here’s a little mind-game for you – and why not looking at the stock market is good for your mental health: 

Take a look at the graphic below and imagine that’s your money invested in the stock market.

sp500 feb 28 2020 zoomed in

What’s the first emotion that comes to your mind? Panic? Anxiety? Fear?

Now look at the graphic below again – just at a different time frame.

sp500 feb 28 2020 zoomed out

What’s the first emotion that comes to your mind? Ease? The certainty that your investments are staying the right course?

FAQs on How to Make Money in the Stock Market

Why should you invest in stocks?


Investing in the stock market comes with many benefits – if you’re committed to investing for the long term.

Here’s why you should invest in stocks:

  • You can start investing early
  • Cost to start investing is fairly low
  • You have the chance to own great businesses
  • The returns, over the past 50 years, are about 7%
  • You have the chance to create a lot of long term wealth

Keep in mind that to be successful when it comes to investing in the stock market, you need to be:

  • Patient
  • Investing consistently
  • Focused on the long term

In the short term (which typically is between 12 months to 2 years), the stock market can be fairly volatile – which is when you need to stay your course and continue investing as is.

What stocks should I invest in?


I think you should certainly invest in the stock market…but I’m not so much a fan of investing in individual stocks. 

Instead, I’m a fan of investing in index funds (which could be mutual funds or ETFs). 

My favorite index fund is the S&P 500 index fund, where:

  • You own a portion of 500 companies
  • You own a diversified basket of companies
  • You own some of the biggest, most stable US companies

With an index fund, you’ll likely never outperform the market (because you own the market), however, index investing is such a stress-free and easy way to build wealth over the long term.