In my last post, I said that I would discuss ways to generate a stream of income aside from your primary job. I will outline five different ways, and dedicate one post a piece to each.
The five different ways are (and there are many more, but these are five that resound with me):
1) Buy stocks, and either sell them for a profit in one or two years, or hold them for extended periods (3-20 years) of time and collect dividends.
2) Buy rental property in areas where real estate has stabilized or is reasonably priced, particularly in college towns.
3) Create a blog and have companies advertise on your site.
4) Buy domain names on the internet.
5) Write articles on www.helium.com.
Ok, so number 1. Buy stocks. A few posts ago, I explained what a stock is. But I'll explain it again. A stock is ownership in a company. If you own McDonald's stock (symbol: MCD), whenever somebody buys a grilled chicken salad or a McFlurry, you, as the owner of the company are entitled to a portion of the profits.
Now, now, you may say. I can't possibly own all of McDonald's. But that doesn't mean you can't own some of it. For a more in-depth look at what stocks are, check out the post entitled, The Difference Between Stocks, Bonds, and Mutual Funds.
Here's the fun part. Picking the stock. I must forewarn that I am making stock picking seem much easier it actually is. Don't get me wrong. Successful stock picking, as does any investment search, requires study and practice. This is not a get-rich-quick site. But neither is it a get-rich-slow site.
Where do you go to find ideas? Peter Lynch, one of my heroes, and one of the greatest investors of all time tells investors to look around them. If you shop and contribute to the economy, then you are constantly bombarded with potential investments.
What do I mean by this? What music player do you see tons of people walking around with, jogging with, reading with, dancing with? You guessed it, the iPod - and this is of course made by...Apple, Inc. (symbol: AAPL) . This is the company that has those zany ads with psychedelic colors and people spasming all over.
If you had noticed in 2003 or 2004 that lots of people were carrying this company's music player, which was easy to use and pleasing to look at, you would have turned an initial investment of $1,000 into $40,000 in the span of 3-4 years. Don't believe me? Check out this chart from Yahoo! Finance.
or click on the Yahoo! Finance link on the side of this page, and type AAPL in the Quote box.
Lastly, another fun topic - dividends. Dividends are portions of earnings that companies give back to investors. Usually the way that people make money in the stock market is through price appreciation. This means that the price of the stock goes from $35 to $40. But this is not the only way to make money in the stock market.
A $35 stock that pays out a dollar of earnings for every share that you own gives you something called a dividend yield, of 2.85% or 1/35. So, if you own 100 shares of this stock, you get $25 every quarter/three months, or $100 a year. And if your $3500 initial investment (100 x $35) goes up to $4000 (100 x $40), for a 14.28% gain, you also get the 2.85% gain/$100 from the dividend. This brings your total gain in the stock to $600 ($4000 - $3500) + ($100), or in percentage terms, 17.1% (14.28% + 2.85%).
To get started investing in stocks, click on the post entitled How to Open a Brokerage Account. Also, check out www.fool.com and go to the Investing Basics section to learn more. And don't be afraid to ask questions and post here.
Thanks for reading.