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How to make investments?

Updated: Feb 4, 2023

Young woman works from home

There are many ways for investments, but the most common ways are to invest in the stock market and real estate market.

Stock market is an aggregation of all market participants. All smart people are in the market, including hedge funds, institutions, whales, dark pools. So it’s very easy for entry, but difficult to consistently make money. There are 3 ways to make money from stock investing. First is through dividend income from stable companies; second is by selling stocks at higher price when the underlying businesses are growing with more profits; third is by selling stocks at higher price when the market sentiment is higher.

First way to make money is consistent dividend income, which is an important income source after you have achieved financial freedom or you are retired. However, it’s usually not a good option for accumulating wealth.

Second way to make money is growing your wealth with the businesses you invested, which is a very good way to make long-term investment. Wonderful businesses will have wonderful returns over a long period of investment horizon. In order to identify those wonderful businesses, you have to be a savvy investor of fundamental analysis. However, any business can fail, and it can’t be predicted. So you can’t put all your nest eggs in one basket. You have to find at least 10-15 different stocks from different industries to invest in, which is usually difficult for most people. Luckily, S&P 500 index has included the largest and most successful 500 companies in the US, and is the best index you can find in the world. If you can invest in the ETFs (such as ETF ticker SPY) or mutual funds that track S&P 500 index on a monthly basis over a long period of time, that would be the easiest way to achieve 10% of average annual return. But you have to remember that the stock market can crash and lose more than 50% of the value sometimes, so you may need to cash out the money when you are approaching financial freedom or retirement before the crash.

Third way to make money is watching closely to the market sentiment and make trading based on technical analysis, which is a trader’s job. Lots of good traders can make fast and big money through trading if they are both skillful and lucky. Some of the traders make trading everyday just like a job, and they are day traders and scalp traders. Most of traders lose money in the stock market because all the smart people are here to compete.

Real estate market is very location specific, so lots of investors travel around the world to find the best deals. Generally speaking, if you live in a city that attracts people to move in, and there are lots of demand but with limited supply, and the housing price is reasonable relative to people’s income, then it’s very easy to make money in the real estate market. Sometimes, there may be a housing market crash, then you may be able to find the best deals. BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) is the most successful way to make money in the real estate market. You just buy a new property at low price, renovate the property and rent to other people for consistent income. The income should be able to cover all the related expenses, such as mortgage, utilities, and property tax. You basically don’t need any more money invested in the property. When the property appreciates in value, then you can refinance and cash out the appreciation value, and repeat the process to find the next best deal.

In addition to stock market and real estate market investing, it’s always a good investment to educate yourself. You can get higher income which is very helpful to accumulate wealth. Some people may utilize their special talent to work for a good business start-up and get the original shares. When the company is listed on the stock exchange, they can sell the shares with good profits and find the next good business start-up to work for. By repeating the process, they can accumulate wealth very fast. But the prerequisite is you have to have special talent and are able to find the right company to work for.

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