The Most Effective Way to Make Money in Stocks as a Young Investor

A few years ago, I dipped my toe into the world of investing without really knowing what I was doing. My cousin had told me about Betterment during a holiday dinner and I decided it was time to start putting small amounts of money into the stock market. Plus, the stories of young day traders “beating” the stock market and making millions had gripped my attention.

Soon after, I took several hundred dollars out of my savings account and put it into a Betterment General Investing account.

That was my first mistake.

I didn’t lay the foundation to make informed decisions about what I was investing in. I didn’t do any research, barely knew anything about the platform, and watched each ebb and flow of losses and gains like clockwork.

And that’s the same problem a lot of young, uninformed investors make. It’s almost too easy to invest. With the rise of online trading platforms, apps, and courses claiming to “Bring $4000 Profit in a Single Day!”, many critics argue that trading has become gamified.

Luckily, I received solid financial advice early on and took a step back to understand what I needed to learn and how I could grow my investment portfolio the right way.

Those lessons are exactly what I’m going to share with you.

Before We Start

  1. I am not a financial advisor. I don’t have a degree in economics. These recommendations are my own plans to make money in the stock market.
  2. Everything I know has been self-taught through experience or learned by reading a revised edition of Benjamin Graham’s “The Intelligent Investor”, and from studying several beginner stock market guides and books.
  3. My financial goal with investing is to build wealth slowly and safely over time to improve my lifestyle and my net worth. If you are investing to support your family or to prepare for retirement, the strategies I mention may not be as applicable.

Now, let’s dive in.

Breaking Down The Basics

Stockbrokers and trendy apps make more money the more people trade on them. They don’t necessarily want you to make infrequent, stable, long-term investments. If you try to beat the house at their own game, you will probably lose. It’s essentially like betting on horses, where almost everyone is losing money with a few people randomly getting lucky.

You can’t predict the stock market with complete certainty like you can’t predict horse races.

But a smart and patient investor, as I will explain, can turn the odds in their favor and make money for themselves rather than a broker or platform.

Here’s how.

Develop a sound intellectual framework for making decisions

“If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.”- Henry David Thoreau

Successful investing is just as much about making good business decisions as it is about following good behavioral principles.

According to Benjamin Graham, an investor’s worst enemy is often him/herself.
Resisting temptation and establishing the right emotional attitude to make informed decisions can help an “ordinary” investor make more money than others who have extensive knowledge of finance or accounting.

Graham explains that the three fundamental elements of an intelligent investing strategy include:

  • Thoroughly analyzing a company, and the soundness of its underlying businesses, before you buy its stock.
  • Protect yourself against serious losses.
  • Aspire to “adequate”, not extraordinary performance.

The third bullet is the key. Amateur investors get sucked into the stock market at high speeds hoping to get rich by trying different techniques and testing tactics that may make them massive temporary gains. But they have little to no chance of success in the long run.

To reach your long-term investing goals, you want to be sustainably right. And the only way to achieve this is through patience, discipline, and an eagerness to improve.

Learn a little about financial markets

“The stock market is a complex emergent system. It won’t listen to you or anyone else. It’s like the weather — just does what it does, so you might as well get used to it. Take the time to learn how the stock market really works.”- Mattew Kratter

If you think of investing as simply “pushing a button” you will fail.

Most people don’t put in the pre-work that profitable investing requires. Instead, they tend to gloss over the latest Robinhood news or skim a Motley Fool article. This habit makes it alluring for young investors to throw money at an emerging biopharmaceutical company or the latest tech stock. But every company, from Microsoft down, can go bankrupt.

That’s why an essential step is learning how to research stocks, ultimately minimizing risks and maximizing returns.

Never attempt to time the market

“All of human unhappiness comes from one single thing: not knowing how to remain at rest in a room.”- Blaise Pascal

You can never predict the immediate behavior of the stock market. There are resources and tools to make an educated guess, but no active investor has ever navigated the stock market with one hundred percent accuracy.

It’s far better for young investors to focus on the long run over short streaks.

Put limits on the amount you are willing to gamble

“Once you lose 95% of your money, you have to gain 1,900% just to get back to where you started.”- Jason Zweig

Some platforms make it incredibly simple to take money out of your savings and invest immediately. Robinhood even “floats” users money before actually removing it from their accounts if they want to buy now but don’t have available funds. This is where investing becomes dangerous.

Know how much money you can afford to risk with an investment and don’t break your own rules. I like to use automated monthly contributions to my accounts so that I am not taking out more than I should.

Remember, the stock market goes up over time

“Those who do not remember the past are condemned to repeat it”- Santayana

At an index level, the stock market average has historically gone up. Of course, there are major dips during a financial crisis — but it eventually recovers over longer periods.

It’s important to note that this does not mean individual stocks will always go up.

The Ultimate Strategy I Follow

Alright, so now you (hopefully) have a better understanding of the stock market and how to develop a sound intellectual framework for making decisions.

Here’s the secret: your ultimate goal should be to buy a great company at a good price. There are no flashy gimmicks. No shortcuts. No get rich quick schemes.

Sounds simple, right? Most people don’t think like this. They want to buy, buy, buy when the market is hot and then sell right before the losses pile up. But temporarily high returns prove nothing and often end disastrously. Even highly skilled investors can crash and burn if they try to time the market.

So, here is my exact investing strategy.

  • Start with research: Before investing in any company or fund, I always make sure that I understand what it is/what they do and how they fit into their industry. If I can’t explain it, I won’t invest in it. For individual stocks, think about its industry presence (established name versus young startup), how the company fits into the future of its industry, who the leadership team is, and if there are any known obstacles the company must overcome.
  • Set recurring monthly payments: Every month, a percentage of my income immediately goes into an account made up of different index funds. Rather than focusing on individual stocks, I have more stability by playing the market as a whole. This is money I never see and rarely check on. If we remember Graham’s three elements of intelligent investing, automation protects me from making emotional trades and gambling with more money than I can afford to lose.
  • Put a limited amount aside for high risk/high reward:I use small percentages of extra income to try and hit a home run, with the mindset that this is money I have already lost. Maybe you want to take a flier on one of the COVID-19 vaccinations or attempt to latch onto one of the many cannabis stocks. Again, these high-risk speculative investments should be kept at a minimum if long term wealth is your goal. And you should still exercise research, patience, and security.
  • Remain eager to learn and remember the basics: Study famous investors and read their memoirs, casually follow the stock market and take notes, avoid anything that promises immediate results, and seek guidance from others who have failed miserably. Ultimately, make investing enjoyable. I have found lessons in the stock market to apply to other aspects of life and am starting to love the strategy that goes into investing. If it’s emotionally draining or stressful, consider pursuing something else.

Final Thoughts

In short, here’s why my strategy is simple but effective for young investors:

  1. It’s highly automated
  2. It doesn’t require day to day monitoring
  3. It’s safer than other short-term investing strategies
  4. It’s rooted in research and historical data rather than speculation and trends
  5. It’s built for long-term wealth

I hope this helps you on your way to making money in the stock market. Now all that’s left is the work!


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