As this blog has pointed out before, many passive income strategies are essentially side businesses that can generate profits with little to no effort on your end once they’re up and running. However, getting them established in the first place means putting in a significant amount of work.
The rewards of establishing a passive income stream are usually worth the initial effort involved, but if you’re looking for a strategy that doesn’t require a ton of work up front, you might want to consider investing in the stock market. Doing so can be risky, but if you already have some degree of interest in investing, you’ll stand a better chance of profiting from your endeavors.
Keep in mind that the ideas in this post are designed to help you get a better sense of whether or not investing in the stock market is a good passive income strategy for you. None of this information should be considered professional financial advice. For suggestions on what investment choices to make, you need to ask a licensed financial advisor.
Consider Brokerage Options
Before you can buy or sell a single share of stock, you need to open up an account at a brokerage firm. There are many options from which to choose, so it’s a good idea to investigate the features of each company and compare them to your own goals.
For example, some brokerage firms allow customers to regularly consult with advisors about which stocks they expect will rise in value. These types of services are often ideal for people with little investing experience.
Unfortunately, traditional firms like these also tend to impose broker fees that can be too costly for someone with limited capital. These companies can also be too expensive for investors who plan on making relatively frequent trades, because they charge a fee for each transaction.
Luckily, several cheaper brokerage options exist. Apps like Robinhood allow users to trade stocks without broker fees, right from their mobile devices. App-based brokerage firms can charge less because of their lower overhead costs. Unlike traditional firms, they don’t have to spend money to maintain any brick-and-mortar locations.
While brokerage apps offer convenient solutions for investors with small amounts of capital, they don’t provide anything in the way of financial advice. Therefore, you will need to judge how much this service is worth to you before deciding which type of brokerage firm to use.
Calculate How Much You’re Comfortable Losing
It’s certainly possible to make money passively by investing in the stock market, but there’s also a chance that you could lose every penny you invest. Consequently, it’s very important that you honestly determine how much money you’re comfortable risking. Although it is true that investing a small amount of money limits the amount you can expect to earn in the early stages, you don’t want to end up in a stressful financial situation because you invested more than you could afford to lose. Thus, you shouldn’t make a single trade until you’re sure you know how much money you can forfeit safely.
Do Your Research
The Internet is filled with other investors who can help you learn more about choosing the right stocks. From the sub-communities of Reddit to the fast-paced conversations of StockTwits, there are many investors who like to discuss trading on a daily basis.
You can use their experience to your advantage. However, keep in mind that people you shouldn’t trust frequent these online communities. Some are not as experienced as they claim to be, and others are merely trying to “pump” a stock’s price by posting falsely optimistic information about it online.
Still, these communities also contain plenty of members with good intentions who genuinely understand trading. Before you make a single trade, you should learn as much as you can by following their conversations for a few weeks.
Doing so offers several benefits: First, it allows you to encounter some of the common terminology people use when discussing the stock market. Second, it gives you a chance to determine what kind of advice is generally reliable, and what kind isn’t. For the best results, you should “pretend” to invest in stocks during this early learning period. If members of a community recommend purchasing a stock, you can calculate how many shares you could buy if you were ready to start trading and then follow the stock’s progress to determine whether you’d lose or earn money. By practicing trading in this manner, you can build your skills as an investor without risking any actual funds.
Investing in the stock market is risky. However, if you make smart choices and prepare accordingly, it can also be an efficient way to earn a passive income.