How does Passive Income of Stocks work? Is it really profitable? Table of Contents

Invest in Stocks for Passive Income

Who among us would refuse to receive a stable income with minimal effort? Today, buying shares is an investment in your financial future, if, of course, you managed to make the right choice. Let us remind you what options we have.

For a beginner, even one with experience in trading with ordinary assets, investing in company shares is not quite a familiar process.

Investing in company shares – what are we buying?

Shares are a type of securities that entitle you to a part of the profit in the form of dividends, as well as the opportunity to participate in the management of a company (or fund). Stocks can be used as a common trading asset for speculation – they can be sold at market prices and earned on the difference with the purchase price.

What are Synthetic Stocks and Stock CFDs? What’s the Difference?

At the moment, the market divides stocks into five groups.

1. Blue chips

Market leaders with huge capital, stable income, but relatively low dividends. Only long-term investments in shares of such companies make sense, because they grow slowly, in proportion to the economy as a whole. Not good for speculation. It will take a lot of capital and even more patience to generate tangible income. But it is stable, and there is always a demand for these shares.

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2. Growing, or “young” stocks

The profit of such companies is calculated faster than the average rate for the industry or region. The dividend from them is usually small, but you can speculate on them well. Many bubble companies – financial and technological – make such investments in stocks very risky: quick profits and quick losses. Beginners most often lose on them.

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3. Cyclical promotions

Large companies that repeat the dynamics of the industry or the issuing country: if the economy grows – they go to profit, on any global or local problems – they decline. Again, you will have to rely on income from speculation, and not from dividends. An example is Walt Disney Co.

4. Protected shares

The dynamics of the economy are practically independent (well, unless it is a global crisis), for example, Procter & Gamble Co. The risks are low, but the income is also low. As a rule, they are not suitable for speculation, only for long-term investments.

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5. Speculative stocks

The all-or-nothing option is for those who are willing to take serious risks. These are shares of companies that offer a new product, service, or master a completely new area of ​​the market. We do not expect any stable dividends, although they are not excluded. Most profits are made only on speculation, but reinvesting in high-tech stocks such as Apple or Samsung can be profitable in the long term.

A special option for investing in stocks is stock indices, or a “basket” of various securities, including debt obligations. We highly recommend that beginners develop in this direction – this is the least dangerous option to invest in stocks.

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How and where to buy stocks?

The best way is to do it on the stock market on its own, but the high entry threshold immediately weeds out newcomers. You can choose the usual option of working through a broker – a private company or a bank. If there are no direct options for individuals, a broker can act as an intermediary and trade shares on your behalf. Naturally, we choose a broker carefully, preferably with a state license specifically for the stock market.

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What you should know before investing in stocks

  • The choice of the form of investment in stocks directly depends on your goals: you must determine for yourself the amount that you are ready to invest, an acceptable level of profit for yourself and a critical period for obtaining it. This will determine your strategy: accumulate dividends, actively speculate or organize something in between.
  • You will have to process a lot of information on the company’s activities, analyze events, evaluate competitors. All this affects the price and liquidity of a stock, so if you prefer industry-specific assets, choose those in the specifics of whose activities you know at least a little.
  • Diversify your investments: it is better to buy shares of several companies from different industries and then adjust your strategy, while the risk of global losses is reduced.
  • Choose long-term investments in stocks, at least with an aim of 2-5 years, and do not sell stocks too often, unless during a period of company stability.

It is possible that investing in securities – stocks, bonds, or participation in investment funds – seems difficult and dangerous to you. Of course, for investing in stocks, profitability is the main indicator, but in addition to the desire to make money, you must learn how to protect your money, and this requires knowledge, experience and character. Contact the professionals! A reliable and competent manager will help at any stage, even if you have already started working on your own, but you made a mistake or panic, and it is difficult for you to make a decision.

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