How to Make Money in the Stock Market: NEW Guide [2022]

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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 in this post, I’ve personally made over $17,000 in the span of a few months following the March 2020 stock market flash crash.

Keep reading.

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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 Buffett. 

It can – and likely will – for you too.

7 Ways to Make Money in the Stock Market

Are you ready to take part in the action?

Then let’s get started.

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.

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.

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 Investment Manager Employer Retirement Plan

Investment knowledge needed?

No

No

No

Limited

Investment minimum

$5

$0

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

$0

Fees

$1 to $5 per month

$0

1% to 2% of account value

0.01% to 2% - depends on fund options

Do you get investment guidance?

Yes

Yes

Yes – Customized

Limited

For the long term investor

No

Yes

Yes

Maybe

For the risky investor

No

No

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 the Acorns investment platform.

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 M1 Finance investment platform.

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.

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

Keep in mind that not every investment platform offers all account types, so make sure you’re informed what account type you want and which investment platform offers that account.

Below is some additional information for you:

Acorns M1 Finance

Individual Account

Yes

Yes

Joint Account

No

Yes

Traditional IRA

Yes

Yes

Roth IRA

No

Yes

SEP IRA

No

Yes

Trust Account

No

Yes

Solo 401(k)

No

No

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.

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:

  • Low cost
  • Stress-free
  • Passive investments
  • Perform in step with the market

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.

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.

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

If you want to be like the pros, consider getting an investment research tool.

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?

fiona smith the millennial money woman

The Bottom Line:

When you look into the long term, your stress levels decrease. You filter out the noise in the stock market. Stop looking at your stocks daily.

FAQs

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

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.

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.

The good news is that investing in the stock market is not as difficult as you may think. 

Below are 7 steps that you can follow to begin investing in the stock market:

  • Determine if you’re emotionally ready
  • Create an investing budget
  • Determine which investing platform suits you
  • Select an investment account
  • Know the difference between stocks, ETFs and mutual funds
  • Implement a dollar cost averaging strategy
  • Keep a long term mindset

And remember, the most important part when it comes to investing in the stock market is to simply start.

The great news is that there isn’t a minimum amount of money to start investing. 

However, if you want to see a meaningful impact in your investing journey, then you may want your initial investment to be around $100 or more.

The trick to becoming a successful investor in the stock market is to invest consistently the same amount of money – and over a long period of time.

Yes, you can certainly invest $100 in the stock market.

With $100 as a starting point, make sure to research which stocks, ETFs or mutual funds are priced less than $100, or you can also consider fractional investing, where you can buy a portion (or a fraction) of a fund, regardless of the price.

Related: How to invest $100

You can invest even if you have small amounts of money. 

Some of those additional investing methods are listed below:

  • Invest your money in fractional shares
  • Invest your money with robo-advisors
  • Consider peer to peer lending

It doesn’t matter how much money you have to start investing. 

What matters is that you start and consistently invest.

Closing Thoughts


What I want you to take away from this blog post is that investing in the stock market is not:

  • Risky 
  • Daunting
  • Intimidating

…If it’s done right. 

You probably won’t become a millionaire if you commit to day trading. 

But you can become a millionaire if you stay the course, invest consistently (even when there is a recession – and there will be one) and stay patient.

You can make money in the stock market if you:

  • Start early
  • Ignore your fears
  • Stick to your plan
  • Focus on the future

The most important factor here is that you simply start.

The earlier you start investing, the more time you have on your side, and the more likely it is that you will make money in the long run. 

Your bank accounts will thank me later.

What are your thoughts about investing in the stock market? Let me know in the comments below.

Fiona Smith
Fiona Smith
Fiona Smith is the founder of The Millennial Money Woman. She holds her Master of Science Degree in Personal Financial Planning, has advised decamillionaires for 6 years in the corporate wealth management sector and has co-founded a local non-profit community teaching financial literacy. She is the author of the personal finance book How to Get Rich from Nothing and her work is featured on Forbes and FinCon.

4 thoughts on “How to Make Money in the Stock Market: NEW Guide [2022]”

  1. Long term focus is such an underrated skill that should be taught in school. Delayed gratification has made millions of people rich and the lack of it made millions of people poor. Setting it and forgetting about it is the best route to take!

    1. Hi David,

      You are spot on – when you set something and forget it, that’s when you’ll be able to reap the long-term benefits. I know a close family friend who bought stocks 50 years ago just for the sake of it, forgot about the stock investments and now, 50 years later, the investments have grown by more than 400%! When you don’t stress about investments and just let your money compound and earn more money, you have a much greater chance of seeing success.
      Thanks for sharing your thoughts!

      Cheers,

      Fiona

  2. I love how you have outlined your work briefly for everyone to start investing. I personal will start with acorns and since its needs little capital maybe it might work for me as i scale higher in this industry….
    I hope to keep in touch with you

    1. Hi Dennis,

      I think you have a great plan – starting with Acorns and then figuring out what works for you, as you build your wealth down the road. Good luck with your future ventures!

      Fiona

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