Who doesn’t want to be wealthy? Who says no to the money? If you ask us, We’d say no one. Most of us look at various ways to make money and some time or the other we might also have thought about buying shares or investing our money in the stock market. It might be from our own interest or because of the influence, a movie, a friend or a successful investor (that we read or heard about) had on us. And that thought most of the time goes unfulfilled coz we are too afraid to invest our money in the stock market considering it “risky” as everyone around us says.
It is common for all of us to be afraid when we are planning to invest our hard-earned money in something which doesn’t have any certainty. But if you learn more about stocks and how to invest wisely in them, investing in stocks can be a better way to build wealth than having a modest income.
As you go further into the article, you will learn how to make money through investing in stocks through an app called Robinhood and also how to make money on Robinhood.
Let’s go one step at a time and help ourselves get up the ladder in the stock market
As the first step in the process, let’s understand how the stock market works
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Stocks and Investing in stocks
Stocks are the investments that enable you to become a part-owner of a company. Companies issues stocks to raise money. On buying these stocks you become a shareholder in the profits and losses of the company, this kind of stocks are called common stocks. Common stockholders also earn shareholder voting rights. While the other variant is called preferred stock which comes with dividends (we’ll discuss this topic in detail further in this article ) which are predetermined.
Companies usually sell shares to raise funds for the development of the company or to launch new products or sometimes to pay off the debts. By issuing shares on the stock market for the first time the company becomes a public traded company and that first issue of stocks is called Initial Public Offering (IPO), after which the shareholders can sell and buy the shares of the company on the stock market.
The prices of these shares will be determined by the demand and supply of the shares. More people buying the shares increases the price of each share and more people selling the shares leads to the drop in the price. The fluctuations in the stock prices aren’t directly influenced by the company’s performance but are influenced by the reaction of the investors to the performance of the company. One more thing to remember about stock price is that it is different from stock value. The value of the stock is determined by the price-to-earnings ratio and net assets of the company which means that a $100 share could be of more value than a $500 share.
What is Robinhood? Why should you choose it?
Robinhood is an American Financial Services company founded by Vladimir Tenev and Baiju Bhatt, these two are the Co-CEOs of Robinhood. The company is headquartered in Menlo Park, California. This company runs its business through a mobile application of stock trading. Robinhood pioneered commission-free trades. Robinhood entered the business in 2013 and has gained success over the years. By 2020, Robinhood had 13 million active traders on the app.
Robinhood was initially developed as a stock trading platform promoting commission-free trading, later the stepped foot in the trading of cryptocurrency and banking.
If you are a beginner in stock trading Robinhood is the app for you. It offers you want commission-free trades( i.e., you don’t have to pay commission for any share you bought or sold on the app), $0 account minimums, it is one of the simplest platforms for trading out there.
Tips to know before you start investing
Before we move forward and get into the details of how to make money on Robinhood since you came this far, you obviously are interested in investing. So, let’s go on and have a look at some of the tips given by the experts in the world of investing.
Set investment goals
What do you want to get out of investing? Even though the ultimate goal here is to make money, needs and goals can differ from person to person. Whatever you expect to get out of investing, the major things you need to consider are the income, safety of the capital and capital appreciation. Also consider your age, financial position and personal circumstances.
Plan your investments ahead of time
If possible, start your investments early. The earlier you start investing the less you need to worry about reaching your investing goals, as you’ll need less money every year, thanks to compound interest.
Also, set a certain amount aside each month to be automatically invested. You can do this through the automatic investment plans offered by the brokerages. These automatic investments help you avoid stalling of investments and maintain consistency.
Take note of your finances
You don’t want to go broke in the middle of the month after spending most of your money in investing, Do you? We know, going broke and falling short on paying bills is not a pleasant experience for anyone. So, it is important that you look at your finances before you decide on how much to invest. Make sure you keep money aside for your monthly expenses, loan payments and any essentials.
After you take note of your finances, decide on how much you want to invest. How much ever it is, it need not be a big investment in the beginning.
Learn about investing
Since you are interested in investing and are entering the world of investing, it’s time you start learning everything you need to know about investing. Start with learning about stocks, then move on to mutual funds, bonds and certification of deposits. Also, portfolio optimization, diversification and market efficiency.
Beware of commissions
When you are new to investing there is a chance that you might be tricked by the people into buying stocks which pay them good commissions but doesn’t pay much to the buyers. Well, with Robinhood you don’t have to worry about these so-called professionals since its a commission-free trading platform.
Concentrate on your portfolio
It is important that you concentrate on your portfolio since the market isn’t constant and fluctuates often and things go up and down always. If your portfolio has similar stocks you might end up at the risk of losing all your money. To prevent or avoid that it is better to keep your portfolio diversified. In that case, even if some of your stocks are at a loss, some might bring you profit.
Also, it is important that you study your portfolio always. Keeping updated with the trends in the market and deciding on what is right or wrong for your portfolio is a must if you want to succeed in investing.
How to make money on Robinhood?
Making money on Robinhood is almost same as with any other brokerages out there. But what makes Robinhood special is the commission-free brokerages it is offering to its investors. Before, people used to pay up to $10 commission to the brokerages for each trade they make. But you need not worry about the commission costs now that you have Robinhood at your fingertips.
Now that we know what Robinhood is and why is Robinhood a better choice for investing, let’s look into details of how we can make money on Robinhood.
There are two ways through which you can make money on Robinhood
- Dividends
- Asset appreciation
Dividends
What are the dividends? How can you make money on Robinhood through dividends?
Dividends are the payments the shareholders receive from the company quarterly. Dividend investing refers to the portfolios of stocks that provide consistent dividend payments through the years. Dividend investing could be a reliable choice if you are looking for a steady passive income stream.
However, judging a stock only by the price is not recommended as sometimes the companies will increase their dividend price to attract the investors when the company is at a loss.
Now that you are familiar with what dividends are, let’s see how these can help us earn money on Robinhood.
Not all companies pay dividends out there. It is usually the well-established companies that pay dividends to their shareholders. Research about the companies and the best apps for stock research that pay dividends and see which of those companies are more reliable to invest in. Once you have made the choice, you can invest in their stocks on the Robinhood application. And when you receive the dividend payment you can make use of the fractional shares offered by the app and re-invest it in same stock that paid you the dividend or you can just take out the money.
While we are still on the topic of the dividends, you might also want to know about the Blue-chip stocks. These stocks got their name from the poker where blue is the colour of the most valuable chip. These are the stocks that are of the companies that are well established and have a consistent history of paying dividends regardless of the economic conditions of the company
These stocks are preferred by most investors because of their faster dividend growth compared to the inflation rates. They provide steady returns to the investors.
Asset Appreciation
Asset appreciation, also known as capital appreciation, is one of the most common ways to earn money in the stock market. To explain in simple terms, asset appreciation is buying a stock or cryptocurrency for a small price and selling them for a greater price.
For example, If you bought the stock of a company for $50 and after a year if/when the stock price becomes (more than what you bought the stock for) $70. By selling the stock to someone else for $70 brings you the profit of $20.
There is another feature that the Robinhood provides, which might come as an advantage to you when buying the stocks. This feature is the analyst ratings that you can find in the app, which lists the top movers and shakers and the payoffs they are expected to reach in a specific timeframe.
Using the above-said feature you can get an idea of what shares to buy. Selling them at the right time analysing the rise and fall of the stock price and value can yield you the profit you need.
Wrapping up
Stocks and investments is a risky and complex business since it is hard to predict the fluctuations in the stock market. And not knowing when to invest, how to invest, where to invest, also how much to invest are the common issues any beginner investor will have. Choosing the right platform like Robinhood which provides you with commission-free trades and saving you the commission costs and also the platform which gives you a simple and comfortable trading experience is the first big step you can take in your investing career.
Along with that, understanding the dynamics of the stock market, getting yourself familiar with it, and learning a few tips which can help you in your journey up the path, all of these are the important things you should take note of before entering the world of investing.
Read up and stay updated with the trends in the stock market. Learn all that you can about the market. Do your research, check your finances, keep your portfolio in order. When you are ready, start investing, make use of the facilities provided by apps like Robinhood and study the stocks you have invested in. What is right for your portfolio today might not be right tomorrow and the stocks which are successful in one place or a country might not have similar success in another. So, make sure you do enough research on the stocks you want to invest in and the stocks you keep or remove from your portfolio.
That being said, Move ahead and go dive into the world of investing.
