“Make your money for you.”
We’ve all heard of this phrase many times but what does it really mean? “Make your money for you” means using your money to get more money. We get money by trading our time for money. And we store the money in a bank account. With current interest rates, you wont get much interest on your money and your money will not grow fast.
However, investing is a way of making your money work for you at a quicker rate. Investing in stocks has consistently proven to be one of the most profitable forms of investment available. The other avenues for investing are unit trust or mutual funds, bonds, property auctions and so forth.
Benefits of investing in the stock market
- Immediate Buy/Sell so you can sell part of your investment any time.
- Very low transaction cost.
- The freedom to work at your own place, at your pace in your own time.
- Easy monitoring — log in to the market from anywhere in the world.
- Being able to maximise returns whilst spreading your risk.
- A predictable form of investment if you know what you’re doing.
- Putting you in control and freeing you of fund management fees.
- Considerable tax advantages.
Things to be ware of:
- The market can be a volatile place.
- You must acquire knowledge of what you are doing.
- You must monitor your investments.
- You must learn the discipline to enter and exit the market on entry and exit signals.
Can Ordinary People Profit from the Stock Market?
Many people say things like “I’d love to get into the stock market” or “If I had more money, I’d invest in stocks”. Many people also believe that to make a profit from the stock market you either need to be rich already, be a full-time investment trader or be a financial whiz.
Far from it!
Investing in the stock market is a simple process. Just like everything else in life, there are risks you should be aware off.
Here are some examples of investing in the stock market.
Scenario 1:
Jonathan works in a manufacturing plant earning USD33,000 a year. After rent, living and personal expenses, Jonathan has managed to save USD1,500 over the past 6 months that he wants to invest in the stock market. Jonathan buys 1,600 shares in Enron at USD0.90 per share (USD1,440). He also pays USD32.95 brokerage fees for buying the shares. In total, Jonathan has invested USD1,472.95.
Six months later Jonathan decides to sell his shares. He has kept an eye on the performance of Enron and they have risen to USD1.19 a share. Jonathan sells his shares for USD1,904. He also pays USD32.95 brokerage fees for selling his shares, leaving him with USD1,871.05. That is a profit of USD398.10.
USD398.10 may not sound a lot, but remember, Jonathan only invested USD1,472.95 for 6 months, so he won’t make a huge return. Nevertheless, Jonathan made a 27% profit which is far better than he would have made by putting the money into his savings account.
Scenario 2:
James and Samatha both work full-time in professional jobs. Together, they earn USD120,000 per year. After mortgage repayments, living and personal expenses James and Samatha have managed to put away USD5,000 that they want to now invest in the stock market. They buy 1,500 shares in Exxon Mobil at USD1.48 a share (USD2,220) and 1,500 shares in Shell at USD1.33 a share (USD1,995). They also pay USD65.90 brokerage fees for the two transactions. Their total outlay is USD4,280.90.
Over the next 12 months Exxon Mobil shares have risen to USD2.60 a share and Shell shares have moved to only USD1.38 a share. James and Samatha sell their shares for a total of USD5970. They pay their broker USD65.90 and are left with USD5904.10. Their initial investment was USD4,280.90. So, they make a profit of USD1,623.20.
These examples show that investing in the stock market is a relatively simple process. However, one should always take a prudent approach when investing in the stock market. Never listen to rumours. Always do your homework, which is to study the background of the companies that you’re investing into.
I will explain more about investing in the stock market in the next post.
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Cialis on 03.10.2010
QcTCv1 Excellent article, I will take note. Many thanks for the story!