Good morning income streamers! A while back, I wrote up an article about how to invest less than $50, with some ideas including peer to peer lending and purchases that save you money in the long term. However, as many of you know, the stock market tends to be the most consistent and profitable form of investment, if you can stomach the ups and downs and not attempt to time the market. Unfortunately for many of us income streamers, we are just starting out and haven’t built up the assets to meet a minimum deposit, and even if we could deposit our funds at a traditional firm, the fees would eat up any profits before they got to us anyways.
Luckily, Robinhood steps in for small time investors! This app allows users to deposit any amount, and does not charge fees on their trades. Instead, they make money off of providing tax accounting for users with mid-size accounts of $2500+, which allows them to give users like me and my fat $10 account a free ride. Over the coming days, I hope to grow this account by transferring more money from my free CapitalOne account, which is funded by things like lockscreens and other passive income. I would not recommend putting in more money than you could painlessly lose in Robinhood, since it is a stock-picking app and it is entirely possible to lose money. If you are looking to invest a serious amount of money, such as a retirement account, I would explore options such as tax-advantaged accounts and after-tax brokerage accounts. However, if you have funds from all that extra income we’ve earned so far lying around, it’d be a great idea to get that money compounding early and working while you sleep!
Here are some common strategies to make a few bucks on Robinhood:
- Buy index funds. This is the ideal option, allowing you to gain an optimal return without any active trading on your part, but it also requires pretty significant funds since you can’t buy portions of shares on Robinhood.
- Buy conservative, high dividend stocks. This is my strategy. I buy stocks with yields of 5% or higher, and share prices in my range, which is $3-5 on a $10 account. You can profit from both price appreciation and dividend payouts with this strategy, which can make for a nice return: I’m up 5.6% in two months. It does require some active management, because when a certain stock rises in price, its current yield lowers, and it becomes a less attractive investment. When that happens, I hunt down my next high yielding stock, and sell the old one to buy the new one. This happens about once every two weeks, and I actually enjoy the search for a new investment. Its become a nice hobby of mine.
- Flip stocks based on upcoming news. This is a riskier option than 1 or 2. In this strategy, you snoop around for important news and events that could affect a company’s prospects, like acquisitions, mergers, scandals or clinical trials. Before the event, you buy the stock if you believe the news will be better than anticipated. The reason this option is so risky is that nearly every active trader is trying to do this as well, and they have far more resources, connections, and experience. Its highly likely that the market will account for the news better than you can, so trying to trade against the market will be difficult. But if you have expert knowledge in an industry, it can be profitable. That’s how hedge fund manager and biomedical expert Martin Shkreli made his money; he would scan clinical trial results of biomedical companies for missed details, and trade on whether he discovered good or bad knews.
- Bet on penny stocks. This is the riskiest proposition. Basically, there’s two schools of thought with penny stocks: pick a random one and hope that it has nowhere to go but up, or buy a large stake in a penny stock and try to influence its management to perform better. I see this strategy as equivalent to roulette and I do not engage in it.
Do any of you have experience with stock apps? Do you recommend any other apps? Do you have any other trading strategies? Let me know in the comments, and as always, stay earning, streamers!
(PS – that Ultimate Penny Pinching Guide is in the works! Feel free to contact me if you’d like to add something.)