How to Make Money in the Stock Market. 6 Proven & Tested Ways

An In-Depth [Actionable] Guide Comparing & Testing 6 Great Ways To Make Money in Stocks. ETF, Value & Growth Investing Strategies vs. Stock Trading.

This article highlights the most effective strategies to adopt when investing in the stock market.  We start with the easiest, lowest effort, and lowest risk methods and end with high effort and higher risk strategies. We support each strategy with data, research, and charts to highlight the effectiveness of each approach.

The Best Way to Make Money in the Stock Market

Evidence suggests that the very best way to make money in the stock market is to invest long-term for at least 20 years. Statistics show that in any 20-year period from 1930, the US stock markets have made a profit. In the previous 20 years, the NASDAQ 100 made 265%, the DJIA made 144%, and the S&P500 made a 128% gain.

20 Year Stock Market Performance, SP500, NASDAQ 100, FTSE 100, Nikkei 225, DJ30, German DAX to 2020
15 Year Stock Market Performance, SP500, NASDAQ 100, FTSE 100, Nikkei 225, DJ30, German DAX to 2020

The Easiest Way to Make Money in Stocks

The fact is the easiest way to make money in stocks is to invest in a broad market passive index-tracking fund. Wall Street Journal research in 2019 suggests $4.27 trillion is invested in passive ETFs that track the market. Investing in a passive ETF is easy, you do not need to select stocks, your investment is diversified, and they have low management fees.

So, we can conclude that investing long-term in broad market index-tracking funds is the simplest and least risky way to make money in stocks.  However, other strategies could potentially earn you more money, but they may require higher levels of effort to maintain your investment portfolio or contain more risk.  Here we highlight six ways to make money in stocks.

The 6 Methods for Making Money in the Stock Market
The 6 Methods for Making Money in the Stock Market

Top 6 Best Ways to Make Money in the Stock Market

  1. Invest in an ETF for the Long-term (Low Risk, Low Effort)
  2. Use an Automated Robo Advisor (Low Risk, Low Effort)
  3. Invest in Value Stocks Long-term (Low Risk, Medium Effort)
  4. Invest in Growth Stocks (Medium Risk, Medium Effort)
  5. Invest for Income/Dividends (Low Risk, Medium Effort)
  6. Trading Stocks (High Risk, High Effort)

1. Invest in an ETF for the Long-term (Low Risk, Low Effort)

Since the invention of the index Tracking Fund by John Bogle of Vanguard, passive index funds have grown to be the single most significant investment vehicle in the USA and Europe.  Because the funds are passive not actively managed, the management fees tend to be very low, which means more profit for the investor, rather than more profit for the fund manager.

Investing in Index Tracking Funds (ITF/ETF) makes a lot of sense in the US A because it has the best performing stock markets in the world. As you can see from the chart below the top-performing indices over the last 15 years are primarily the Nasdaq 100, S&P500 and the Down Jones Industrial Average (DJ30)

15 Year Stock Market Performance, SP500, NASDAQ 100, FTSE 100, Nikkei 225, DJ30, German DAX to 2020
15 Year Stock Market Performance, SP500, NASDAQ 100, FTSE 100, Nikkei 225, DJ30, German DAX to 2020

Stock Market Performance 15 Years to 2020

In the above chart, you can clearly see that the best performing index over the last 15 years was the Nasdaq 100 (NDX), with a total growth of 499%.  Here is the full list of 15-year results.

Stock Market Index15 Year Total Growth
NASDAQ 100 (NDX)499.9%
German DAX (DUE30)158.06%
S&P 500 (SPX)152.18%
Dow Jones Industrials (DJI)146.99%
Japan Nikkei 225 (NI225)92.14%
UK FTSE 100 (UKX)21.30%

Source: TradingView.com

Low Risk / Low Effort ETF investing

The reason I suggest that investing in index-tracking ETFs are low risk is that investing in an index means you are diversified across all of the stocks listed in that index.  Of course, that does not protect you from the risk of a stock market downturn or crash.  But do not forget that the growth and returns listed above are the results including the 2008 Financial Crisis and the 2020 Corona Crash.

There is also a very low amount of effort required to employ this strategy; you simply need to purchase and hold for a long time an ETF through your bank or any of the great brokers in the USA.

10 Largest ETF Funds USA 5 Year Performance Table (2020)

TickerNameNotesCapitalization (Value $ Billion)5 Year Growth Rate (PA)
QQQInvesco QQQTrust SeriesNASDAQ 100 Index ETF$74.117.26%
VUGVanguard Growth ETFUS Growth Companies$86.913.28%
VOOVanguard S&P500S&P 500 Index$45910.17%
SPYSPDRs S&P500 Trust Series ETFS&P 500 Index$28010.13%
VOVanguard Mid-Cap ETFMid Size US Companies$1027.79%
VBVanguard Small-Cap ETFSmall US Companies$95.47.52%
VTVVanguard Value ETFUndervalued US Stocks$74.77.44%
VWOVanguard Emerging MarketsEmerging  Market Stocks$79.73.93%
VXUSVanguard Total International Stock ETFTotal World Stock Markets$359-2.69%
VTIVanguard Total Stock Market ETFTotal US Stock Market$756-3%

Source: TC2000

This table highlights the largest most stable index ETF funds available in the USA.  Many of the have equivalent UCITS funds available for European investor too. As you can see, the best broad market ETF fund to invest in over the last five years is the Invesco QQQTrust Series (Ticker: QQQ) as it returned 17.26% per year for the last five years.

Disclosure: I currently have 50% of my investing capital invested in the Invesco QQQTrust Series ETF; it is for me simply the most rewarding broad market ETF. The other 50% is invested in growth and value stocks in a medium-term investment strategy.

2. Use an Automated Robo Advisor (Low Risk, Low Effort)

The Ultimate Robo Advisor Guide
The Ultimate Robo Advisor Guide

A Robo or Automated Advisor is simply an automated service that enables you to establish a stock portfolio based on your specific risk profile and investing preferences. You can choose the balance of capital you have invested in stocks and bonds and even specify a preference for particular industries or ethical preferences.

The advisor will then construct a model portfolio for you, and then after you approve, it will automatically invest your money for you.  In addition to that, many of the best Robo Advisors will also automatically perform your tax-loss harvesting at the end of the year.

Many of the advisors employ industry-standard Modern Portfolio Theory to construct your portfolio as would any human, financial advisor.  The big benefit is that the costs and management fees are much lower than with a human advisor.

Who Operates the Robo Advisors

Robo Advisors are officially mainstream in 2018 Robo Advisors were managing $200 billion in assets, Barrons estimates. Notably, Vanguard’s Personal Advisor Services was the largest Robo Advisor overseeing $101 billion in assets. Schwab is the second-largest Robo Advisor managing $27 billion assets. Also, government agencies like the Nevada State Treasurer are turning to Robo Advisors to manage public investments.

Moreover, some regulatory agencies, like the Monetary Authority of Singapore, are issuing licenses to Robot Advisors. Notably, the US Securities and Exchange Commission (SEC) grants them the same legal status as human, financial advisors.

The amount of funds controlled by Robo Advisors is growing dramatically. In fact, Algonest estimates Robo Advisors worldwide could manage over $2 trillion in assets by 2021.

Do Robo Advisors Beat the Market

The short answer is that most Robo Advisors fail to beat the market.  The goal of most Robo Advisors is not actually to beat the market but to automatically invest your money based on your requirements and risk tolerance.  If you have a low tolerance for risk, your portfolio will be more heavily weighted in favor of bonds which would inhibit the ability to beat the market.

Robo Advisor Fund Performance

Top 10 Best Robo Advisor Services
Our Review & Comparison of the Best Robo Advisors

Many Robo Advisor funds are not completely transparent with their reporting of their fund’s performance, due to possible to the complexity of options on offer not being directly comparable to the underlying index or more likely because they do not beat the market and do not want to make false claims.

Evaluating Robo Advisor performance is difficult because there are vast differences between advisors. For instance, different advisors keep different levels of the customer’s money in cash.

Notably, Charles Schwab’s Intelligent Portfolios keep 6% of a customer’s investment in cash. To explain, a high level of cash lowers the exposure to market losses. Unfortunately, a high percentage of cash increases the exposure to inflation and lowers potential market gains.

On the other hand, most Robo Advisors keep less of a client’s money as cash. Also, some Robo Advisors could allow you to choose the level of funds in cash.

For instance, cash is a poor investment for a younger person saving for retirement or an individual with a high income. However, cash is a good investment for a person with a limited income, such as a retiree.

3. Invest in Value Stocks Long-term (Low Risk, Medium Effort)

Warren Buffett has proven over the last 50 years to be the most successful investor of all time.  With an average compound rate of return of 23.3% per year, he and his good friend Charlie Munger have a reputation that Wall Street can only dream of. His wise investing has grown his company Berkshire Hathaway (BRK.A) into a behemoth worth over $500 billion.

But how did Buffett achieve these great investing returns?  He analyses stocks better than anyone else and understands what makes a great company.

The most detailed analysis of Buffett’s investing methodology is outlined in the book “The New Buffettology” by his daughter Mary Buffett.  We will use the Buffettology book, plus the two single most important criteria created by his mentor the great Benjamin Graham, Fair Value (Intrinsic Value), and Margin of Safety.

The Warren Buffett Value Stock Screener

A Warren Buffett Stock Screener needs to filter on investing criteria such as earnings per share (EPS) growth, consistent return on equity (ROE), high return on invested capital (ROIC) and low debt using the solvency ratio. Finally, the screener needs to calculate the margin of safety using discounted cash flow (DCF).

How Does Buffett Screen for Stocks?

How To Build The Ultimate Buffett Stock Screener
Article: How To Build The Ultimate Value Stock Screener

Buffett screens for stocks using specific criteria is the company profitable and generating a healthy cash flow.  He then predicts and discounts the cashflow ten years into the future. If the value of the cash flow is 30% higher than the stock market valuation of the company, then it has a good margin of safety, and it is a candidate for purchase.

Specific Rules for the Warren Buffett Investment Include:

  • Look for Fair Value Higher Than The Current Stock Price
  • A High Margin Of Safety
  • A Strong Earnings Per Share History & Growth Rate
  • A Consistently High Return on Equity
  • Does the Company Earn a High Return on Total Capital?
  • Is the Company Conservatively Financed?
  • The Initial Rate of Return for the Stock is Greater than The Return on US treasury bonds?

This entire methodology, criteria, and explanation of how to implement this strategy is detailed in our article: 4 Easy Steps to Build The Best Buffett Stock Screener

Value Investing Strategies

Value Investing Strategy
Value Investing Strategy: Buffett’s Margin of Safety & Fair Value Strategy+ High Dividend Yield & Growth Strategies, We List 7 Strategies, Criteria & How To Screen Them

Hundreds of hours of research and testing have yielded us a selection of value investing strategies and criteria that we are proud to call our own. We will show you what criteria to put together to meet your investing needs.

Whether you are looking for companies that offer great value and a large margin of safety, or you are looking for high dividend yield or continual dividend growth, we explain all the criteria and show you how to implement the value investing strategies for yourself.

Value Investing Effort & Risk

The effort to implement a value investing strategy is undoubtedly a lot higher than investing in an index or using a Robo Advisor, but a lot lower than trading stocks. In terms of risk, risk minimization is a core part of the strategy, using the Margin of Safety Method means that you are inherently buying stocks that are undervalued compared to their intrinsic value (the combined sum of the 10-year cash flow).

4. Invest in Growth Stocks (Medium Risk, Medium Effort)

CANSLIM is one of the most outstanding growth stock investing strategies. It was designed by William J. O’Neil to produce market-beating profit performance. Using the CAN SLIM criteria in your investing should mean profitable returns. Current Earnings, Annual Earnings, New Products, Supply, Leaders, Institutional Sponsorship & Market Direction, are vital criteria.

It combines fundamental analysis and technical analysis into a cohesive strategy.

The CAN SLIM / CANSLIM CriteriaHow To Make Money In Stocks

  • C – Current Earnings
  • A – Annual Earnings
  • N – New Products or Management
  • S – Supply and Demand
  • L – Leaders
  • – Institutional Ownership
  • M – Market Direction

The full breakdown of each of the elements of this strategy, criteria, and how to implement this screener can be found here: A CANSLIM Stock Screener Strategy To Beat the Market.

You can also deep dive into CANSLIM in our What is CANSLIM Article.

Implement CANSLIM with a Stock Screener

Here are the 5 Steps to implement the Stock Rover CANSLIM stock screening strategy.

1 – Register with Stock Rover

Stock Rover Stock ScreenerYou will need a Premium Plus Membership, which gives you access to all the criteria and the database with a unique 10-year history.  It will also allow you to implement all our Warren Buffett screeners and our full list of stock screening strategies and our Dividend growth and dividend yield strategies.

2 – Browse Screener Library

  • See the image to the right.
  • Launch Stock Rover and select:
  • Screeners (Down Arrow)
  • Browse Screener Library
  • This takes you to the following screen.

3 – Import CANSLIM Screeners

Stock Rover has a built-in screen for CANSLIM called “CAN SLIM – Less Restrictive,” which has a very good performance record.

This is the screener we will be using.

  1. In the Screeners, search box type “CAN SLIM.”
  2. Select the two CANSLIM Screeners
  3. Click Button – Import (2 Items Selected)
Searching for CANSLIM
Searching for CANSLIM

4 – View the Portfolio Performance

Now that you have imported the screener, here is how to set up the excellent comparison view vs. the S&P 500

  1. Select Screeners
  2. Select the CAN SLIM – Less Restrictive Screener
  3. In the Chart Below Select “Compare To”
  4. Select Benchmarks
  5. Select S&P 500 or NASDAQ
  6. Select Return Vs. S&P 500 Column Views
How To Setup Your CANSLIM Screener vs S&P 500 View
How To Setup Your CANSLIM Screener vs. S&P 500 View

Growth Stock investment Strategies Risk and Effort

Investing in growth stocks can become a time-consuming effort as you need to maintain a good overview of the current performance of your stock portfolio. Luckily services like Stock Rover do a lot of the heavy lifting for you, but you will still need to research and decide on which stocks you purchase.

In contrast to a value investing strategy which looks for undervalued stocks to minimize risk, the growth strategy looks for stocks that have explosive growth in earning and sales.  This means that the stock might be excessively priced. If the company fails to meet earnings expectations, the stock could erratically lose value; therefore, I would class this as a medium risk investing strategy.

5. Invest for Income/Dividends (Low Risk, Medium Effort)

Income investors typically employ a strategy called the Dividend Kings or Dividend Aristocrats approach. This essentially means investing in companies that have a long history of continually paying and increasing dividends.

For this, you will need a stock screener with a significantly large historical database (at least ten years) of earnings and dividend payments, such as Stock Rover.

The criteria shown here is the calculation for a 10-year period.

Dividend Aristocrats 10 Year Dividend Growth Strategy

Dividend Growth Criteria Explanation:

  • Dividend Yield > 1.5%.  This is a simple filter designed to ensure only companies actually paying a dividend above 1.5% are listed. Anything less than 1.5% will not even payout in line with inflation.
  • Dividend 1 Year Change > 8%. Here we want to see only companies who have increased dividends in the last fiscal year of over 8%.
  • Dividend 3 Year Change > 8%. Next, we filter down to those companies that have at least an average increase of 8% over the last three years.
    Dividend Growth Screener - Criteria Implemented Into Stock Rover
    Dividend Growth Screener – Criteria Implemented Into Stock Rover
  • Dividend 5 Year Change > 8%. Again, only those companies increasing dividends more than 8% over the last five years.
  • Dividend 10 Year Change > 8%. You get the idea.
  • Payout Ratio >10 < 40. The payout ratio is designed to ensure the company is making enough profits to continue to pay the dividends and sustain the increases.  You can reduce the “<10” to see more stocks in the scan. We do not want to see companies paying more than 40% of their profits out in dividends; they do need to retain cash flow for future growth and capital investments.
  • Sales 5 Year Average (%) > 4%. This is designed to ensure that the company is indeed increasing sales, at least on average, to pay for the growth in dividends.
  • Margin of Safety > 0.  (Exclusive to Stock Rover) For me, the most important criterion of all, the Margin of Safety, using Warren Buffett’s calculation, the forward discounted cash flow (see our article on Intrinsic Value).  Essentially, the higher the margin of safety, the more of a discount you are buying a stock for.

These criteria would typically return a list of only 5% of the NYSE or NASDAQ listed stocks.

Income Investing Effort and Risk

The effort required to implement a dividend investing strategy is significantly reduced by using a tool such as Stock Rover, which maintains a robust research and historical 10-year database of all the important metrics and measure you will need.  There are also many off the shelf tested screener to help you find the stocks that meet your criteria.  They have also implemented a reporting system that enables you to forecast the future income you will receive from your constructed portfolio; this is incredibly valuable.

6. Trading Stocks (High Risk, High Effort)

Learning stock trading and investing takes a lot of work.  There are no short-cuts, but you can teach yourself by learning from the wealth of books, videos, podcasts, and training courses available. You must treat you’re investing seriously and not take undue risks with your capital; there are no get rich quick schemes.

Liberated Stock Trader PRO - Stock Market Training
Liberated Stock Trader PRO – Stock Market Training

Do not believe others when they say it is easy to learn; they probably what to sell you a course or access to a trading room.  You can, of course, teach yourself, and we have many great resources you can utilize.

10 Key Steps To Learn Stock Trading

  1. Learn Stock Trading from Books
  2. Watch Movies to Learn About Stock Markets
  3. Watch Our Learn to Trade Video
  4. Listen to Trading Audio Books & Podcasts
  5. Get a Free Stock Trading Course
  6. Get Professional Stock Market Training
  7. Get Free Stock Analysis Tools
  8. Get the Best Stock Trading Software
  9. Prepare Your Trading Strategy
  10. Avoid Stock Market Crashes

 

The Best Way to Make Money in Stocks

The best way to make money in stocks is mostly personal preference. Investing in index-tracking ETFs or using Robo Advisors is a great way to get started. If you enjoy researching and building your own portfolio of stocks, the value or growth investing strategies are rewarding. If you want to heavily invest time in learning, then trading could be a good option.

 

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