Can you really make money on investments?
1 Investing won’t replace your job
The first thing you need to understand is that investing is not easy money!
People who want fast, big and now should not invest, because they are likely to buy a lot of junk stocks, with the hope of rapid and strong growth. Investing is for the patient.
The adequate return on your portfolio that you can count on is 15-30% per annum and no more.
In rare cases, growth of 50% or more is possible, but this usually applies to small portfolios that were just lucky to go into investments in a crisis and buy good stocks on a drawdown.
To earn about 500,000 per quarter (3 months) on investments alone, you need to have a portfolio worth 8,000,000, so you will not be able to enter investments on ambition alone, this is a long and painstaking period that requires many years of savings, unless of course you daughter of an oligarch.
2 Benefits of investments in the long run
The most correct approach to investing is to consider investments as a smart piggy bank. Even if your yield is only 10% per annum, this is already better than keeping money in the bank and certainly better than keeping money in your own closet.
3 Approach to reinvestment
The ideal model looks like this:
You have 100 thousand, every year they grow by 20% in your investment portfolio and every year you reinvest them, “rebuilding" the portfolio with a new one, in order to get 20% the next year from the new amount of 120 thousand.
But in reality, it certainly doesn’t look like that!
Look carefully at the fragment from my investment portfolio. What do you see? Losing portfolio?
No matter how!
I can take profits on Apple stock right now and get $68 in net profit – 0.25% commission.
But at this time, many other stocks are in drawdown. Does this mean that the portfolio is unprofitable? – Not!
The fact is that in fact, the reinvestment process looks like this: you fix one stock in + and you have a free balance. On the one hand, a free balance is good, since the profit has already been fixed, on the other hand, a free balance is money that is not in work and you need to think about what shares to buy with it.
Other stocks that are in loss should not shock you. Sooner or later they will grow back, it’s just a matter of time. To be sure of this, you need to carefully choose the company whose shares you are going to buy. The most important thing is not to buy junk stocks. You will read about them below.
4 How not to buy garbage?
There are several strategies for studying the company, I will talk about the principles that guide me myself.
Each stock has its own indicators, such as P / E, Volatility, profitability, company debt and others.
- The first thing I pay attention to is the trend of the chart, I study it not in the moment (1 month), but its long-term perspective. How has the stock price changed over the past six months or a year? If at the time of purchase you see a sharp jump on the chart, then there is a high probability of a price correction to a lower one. If the graph grows smoothly every month for a year or more, this is a good investment with low risk.
- The second is the industry of the company. It must be understood that such industries as Pharmaceuticals and IT-technologies are now the most profitable. But this was not always the case, and the situation that has developed on the market now can also radically change in a few years. In 2021, I would advise investing in these industries, and I give them my preference.
- The third rule I follow is to study the company as a consumer. In other words, is it a good company or a bad one?
Take Intel as an example, which produces the highest quality processors for PCs, the I-9 processor can be bought on the market with a wide range depending on the model, but the average price for it will be about 70-90 thousand conventional units.
And now let’s study its competitor, AMD processors, which produce chips that are in no way inferior to I-9 but at an average price of 35-40 thousand. And now let’s see how smoothly the value of Intel’s stock dangles back and forth and how AMD takes off. The choice will be obvious!
5 Is it possible to withdraw money from an investment account immediately?
Another topic that worries many, and I have always been surprised and stunned by a similar question.
Answer: YES! It is possible, but why?
If you want to withdraw all your accumulated funds from the investment account, do it gradually and keep in mind that it can take at least half a year to properly withdraw funds. Sell shares at the top – withdraw funds. Those that are currently in a drawdown will be waiting for their turn to sell.
To sum up, the theses:
It is possible to make money on investments, but they cannot be attributed to quick and easy earnings, this is a gradual process of accumulation and reinvestment, calculated for a period of at least 3 years. The main rule of a successful investor is to fix your profits and reinvest. The second main rule is not to buy a pig in a poke, not to buy rubbish! Buy only those stocks in which at least 2 of the 3 points I have given are positive. Be prepared for the fact that the withdrawal of funds from the investment account will take more than six months, so plan this withdrawal in advance, for example, if you need money to buy a home by a certain period.