One of the best ways of generating a passive stream of income is by trading on the stock market. The allure and mystique of stock investing keeps many new investors from taking the plunge. This is unfortunate. Many people start a small investment businesses that start building wealth instantly. There is no real trick. There is no secrets. It is just a matter of mathematics. If you can follow patterns, are artistic, or are good at organizing then you should be able to follow the patterns and make money investing. Yes, there are pitfalls the uninitiated will fall in. And yes, those who do not follow the proven formulas, and do their homework, will end up losing money. But, this does not need to be the case. The Investor The word investing means ‘managing your resources so you can preserve your buying power and generate income. One you decide to ‘work as an investor, and you realize that it is a job as opposed to a hobby, then youll find yourself far ahead of the pack. The first step is to sit down with a blank piece of paper and define your goals. Be as critical as you can. Write down where you are now, including your debts. Calculate how much money you spend in a year on interest. Take a good look. If the average American paid down their credit card and overdraft debts they could generate more than $5000 a year in saved income. Next, ask yourself where you want to be in 10 and 20 years. Each of these charts should be on their own page. Do not try to combine them. The trick is to do this when you are not under pressure or stressed. Now, create a 10 and 20 year projection of the ‘lowest stage you want to be. This is the bare minimum lifestyle you want to be. Once you have this you can calculate the maximum and the minimum you need to earn each year. Most people reach this stage and quit. The amount looks impossible. They may need an extra $20 000 a year, or more to reach their goals. But, remember that investing builds like a snowball. For argument sake, lets say the new investor may start with $5000 and turn it into $8000 in the first year. But they will earn $12000 in the second year. That will turn into $20 000, $30 000, $50 000. Within ten years the investor may have a half million dollar portfolio that generates far more than they ever dreamed. Most new investors skip this step. It has nothing to do with investing. They want to start trading ‘right now. This is a mistake. The charts above will give you an idea of the risk level you need to take. Each time you make a purchase you will stop and ask yourself ‘is a vacation the best long-term investment for my money. They may decide to drive their car one more year before trading it in. The investor might decide to avoid luxuries for two or three years to ‘build their portfolio. This exercise has another benefit. It will teach the mindset followed by stock brokers and help new investors choose stocks like a pro. The Investment Broker The next step is to determine what type of investments fit your goals. High risk investments can earn money fast, but it can also lose money. How long will it take you to recover the loss? Some investors are good with investing for 5 - 10 years and patiently waiting to sell. Others cannot handle the suspense. They want to see the ‘fruits of their labors grow almost weekly. The risk and recovery period will play a significant roll in the stocks chosen. Todays investors are also starting to take a social and environmental look at their investments. Once you have a good idea which types of stocks you want, it is time to find a broker. The cost should be the first consideration. The type of trading should be the second. The Strategy There are a few good strategies out there. They are not secrets. You do not need to pay a guru $3000 and join their secret group to learn how to invest. These strategies are followed by everyone from ‘floor traders to the hobby investor playing from their computer. Once you have a goal, a good broker, and a strategy, you can start investing without fear.
