Can You Make Money In The Stock Market?

Making money in the stock market

There is seemingly endless ways people want to tell you that making money in the stock market is easy if you follow their advice.  However, you have to be very careful of people who promise you something that sounds to good to be true.  Anyone who tells you they can make you 20% a year in the stock market with no risk is lying to you.  Such gains with no risk are impossible, any time you invest in the market you are risking your money for a possible reward, or a possible loss.  The important thing is to understand what you are investing in, and the risks associated with your investment.

One place where you can get a lot of stock market advice is from hedge funds.  There are seemingly more hedge funds than stars in the sky these days.  When you invest in one of these outfits you have a set amount of money you must invest, and then a percentage will be taken of your portfolio, and you may also pay a fee to have your money managed in the fund.  The idea of hedge funds is to "hedge" your money against losses, however this is not what happens in some cases.

Hedge funds are like the wild west of the stock market.  They are largely unregulated and many times people do not realize there is a problem until it's too late.  What you hear on the news a lot is about "ponzi schemes".  A ponzi scheme is where the owner(s) of the hedge fund take in money from new investors to pay current investors with money they have lost or blatantly stolen from them.  There needs to be a continious influx of new money to keep the fund going, and once that dries out the jig is up.  Investors usually get pennies on the dollar back once the scheme is exhausted, and there are countless stories of people who have lost their life savings getting involved with hedge funds.  Statements can be easily made on a computer that are completely false, and you need to be extremely cautious before getting involved with hedge funds.

Even if you don't get involved with a hedge fund who is behaving unethically, they rarely beat the S&P 500 index fund.  If you are looking for a place to put your money where you can have a chance at steady, consistent growth, the S&P 500 is a great option.  If you are ever contemplating getting stock market advice from someone involved in a hedge fund always ask them how their fund has done compared to the S&P 500 in recent years.

High Frequence Trading(HFT) funds are another area investors can look to put their money in.  These outfits use incredibly powerful computers to look for small trends in the market to make in some cases 1/4 of a cent per trade.  These computers look for trends and make thousands upon thousands of trades every day which is how these companies make a profit for their investors.  This is another area where you want to invest at your own risk.  These are not financial professionals that necessarily run these companies, they are computer scientists who design programs on very powerful computers to spot a trend in the market and trade on it. 

The ten million dollar question is can you make money in the stock market when you trade through avenues like hedge funds and HFT outfits. There is risk involved in these type of investments and although you may be able to make large returns with these establishments, they are also not as regulated as mutual funds are.  You will have to gauge your risk tolerance and do your due diligence before making an investment so you know you are dealing with a legitimate firm and you are comfortable with your potential risk vs. reward.

A solution that can work very well for savvy investors who do their homework is investing in mutual funds.  Making money in the stock market via a good mutual fund or funds is a tried and true method of investing your money.  When you invest with a mutual fund company you will be able to view a prospectus on the funds they offer.  This prospectus will detail the minimum deposit needed to buy into the fund, the funds performance history, and all the pertinent information you will need to make your decision whether as to invest or not.

When investing mutual funds it is always a good idea not to place your eggs all in one basket.  This means spreading your money out through various funds of differing risk(depending on what your financial needs and tolerances are), but also you should consider using funds run by different companies.  Like any other industry companies that run mutual funds go through good and bad years, so by diversifying your money with several different companies and different funds you can protect your investment in case of loss of principle.

Wealth management companies are another place to look for stock market advice.  These are companies that actively invest and manage your portfolio by having professionals pick stocks and investments for you an actively trade them with the intention of getting you the best possible return on your investment.

Wealth management companies operate in much the same way as hedge funds do with one emajor difference.  Wealth management companies have much more oversight built in as they are large companies as opposed to hedge funds which are much smaller.  You will never get caught in a ponzi scheme when investing with a wealth management company.  If something illegal was ever done with your money you will be reembursed by the institution, which differs from hedge funds as most times your money(or the overwhelming majority of it) lost to hedge funds in illegal activity will never be recovered.

When investing with a wealth management company you will pay the company either a percentage of your portfolio or on a per trade basis, and this is how wealth management companies make a profit.  If you are concerned about illegal activity, ponzi schemes, and other such activities a wealth management company is a much safer place to invest as opposed to a hedge fund.  You still may lose your investment when you use a wealth management company, but it will only be if your money is put into poor stocks and investments, not because anyone was stealing from you.

Can you make money in the stock market, the answer is yes, you absolutely can.  However, you need to do your homework and make sure you have invested your money in such a way that meets your risk tolerance, your time frame for getting your money out of your investment, and making sure you do not get caught in anything illegal by an unscrupulous person managing your investments for you.




This article is not presenting investment advice, only opinions from the author. Do your own research and always speak with a qualified financial professional before making any investment decisions.







Making money in the stock market
Investing 101 (Bloomberg)
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