About 54% of Americans have some money invested in stocks, according to a 2017 Gallup report, down from 62% in 2008. Investors are a little skittish about stocks — and that’s understandable.
People are less concerned about whether they’ll become instant millionaires and more worried about losing their investment. The good news is that, for most of us, learning how to make money in stocks is about building wealth over time, not acquiring it immediately, according to Tom Drake, a financial analyst and long-time investor.
“With the right approach, you can get started investing with a small amount of money,” said Drake, who runs the financial education website MapleMoney. “But you have to be consistent over time. If you look at successful investors, you can see they have an investing plan, and they increase their contributions.”
If you’re hoping to start investing and grow your portfolio, it can help to get advice from experts on how to make money in stocks. Here’s what some of the most well-known millionaires and billionaires have said about investing:
1. Suze Orman: Shift to a saving mindset
The first step is to change the way you think about saving and spending, personal finance guru Suze Orman told CNBC. Rather than getting stuck in a spending mindset, it’s important to develop an enjoyment of saving money.
Instead of feeling like saving is a “downer,” Orman said you should take pleasure in it. Look for ways to be satisfied with your savings habit.
I like to make a game of saving and investing. How much can I set aside each week? Next month, can I invest a little bit more?
“It can be very satisfying to watch your money grow,” said Drake. “Think about it. You set aside a couple hundred dollars a month in an investing account. After a few months, you look and you can see how much bigger the account is.”
That feeling can help you make a mindset shift that gets you excited to start saving your money and investing it, rather than just spending it all the time.
2. Warren Buffett: Avoid a lot of buying and selling (and use index funds)
In his 2017 letter to Berkshire Hathaway shareholders, value investor and billionaire Warren Buffett wrote, “Stick with big, ‘easy’ decisions and eschew activity.”
Too much buying and selling can lead to losses, said Drake. Rather than getting caught up in trading individual stocks, consider finding a strategy that works for you and stick with it as long as it makes sense.
In his letter, Buffett pointed out his only investing decision over the course of one 10-year period was to sell bond investments and buy more shares of Berkshire Hathaway. He said he relied “neither on research, insights, nor brilliance,” and that the decision was an easy, “kindergarten-like analysis.”
3. John Bogle: Start investing early (and use index funds)
The father of index investing is John Bogle, the founder of The Vanguard Group. His followers, known as Bogleheads, hang on his every word, and many have found investing success by following some of the basic tenets Bogle sets forth.
In late 2017, he released an updated version of his investing classic, “The Little Book of Common Sense Investing.”
In the final chapter, Bogle wrote, “We know that we must start to invest at the earliest possible moment, and continue to put money away regularly from then on.”
The earlier you start investing, the more time you have to take advantage of the process of compound returns. By using our investment calculator, you can see the difference when you start 10 years earlier. You could end up with more than twice the money.
Even if you don’t have $200 a month to invest, the earlier you start, the better off you’ll be. Thanks to online tools such as Acorns and Robinhood, you can start investing even if you have less than $100 in your pocket.
4. Sir John Templeton: Diversify
One of the most successful pioneers of investing in the 20th century was Sir John Templeton, whose watchword was “diversity.” He created some of the most successful international investment funds.
His “16 Rules for Investment Success,” published by Franklin Templeton Investments, offers plenty of good advice for any investor — beginners and advanced alike.
Templeton’s seventh rule? “Diversify. In stocks and bonds, as in much else, there is safety in numbers.” He recommended looking at the industry, risk, and country.
Today, many investment professionals and experts use Modern Portfolio Theory, a method of helping people diversify their stock and bond holdings based on risk profile and time frame.
“For most investors, concentrating on a few index funds that include investments from different industries, as well as an all-world fund to get international diversity is enough,” said Drake. “You don’t need to overdiversify. Just stick with some basic stock and bond funds, and maybe put in a little real estate or cash, and you should be fine.”
5. Tony Robbins: Automate your investments
Life coach Tony Robbins said on his website that if you want to know how to make money in stocks, you need to automate your investments. The motivational speaker recommends figuring out a percentage of your income you can set aside for investing, and then creating a method for automatic savings.
This might be easier than you think if you work for a company with a retirement plan. According to the Bureau of Labor Statistics, 47% of employers offer a defined-contribution plan such as a 401(k). There’s an almost even chance you have access to a plan that allows you to invest automatically.
Talk to your human resources department to enroll. If you’re already enrolled, increase your contribution to match your chosen income percentage, Robbins said.
It’s easy to invest for retirement when the money is automatically taken from your paycheck each month. In some cases, you might be fortunate enough to get a matching contribution from your employer, up to a certain amount. For example, Student Loan Hero matches 100% of my contribution, up to 3% of my pay. For the next 2% of my pay, my employer matches 50% of the money I put into my retirement account.
What if you’re self-employed, a contractor, or if your company doesn’t offer a retirement plan? “You can set up a retirement account with a bank or financial institution,” said Robbins. “Then just set up an automatic transfer from your checking account.”
That’s the strategy I followed before I began working at Student Loan Hero. In fact, I still have money automatically moved from my checking account to my Roth IRA each month. I use Betterment for my IRA, but there are other robo-advisers that offer retirement accounts and automatic investment plans to help you make the most of your money.
How to make money in stocks: Keep it simple
Investing doesn’t have to be complicated or take a lot of money. According to successful investors, the key is to start early with what you have and invest your money consistently over time in index funds.
“You can try new things and take more risks later if you have money to spare,” said Drake. “But for most people, it makes more sense to create a long-term plan and build that wealth over time. Decide what you need to meet your financial goals and only complicate things if you have available funds above and beyond that.”
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