Hello, this is a pretty interesting question.
I am writing this blog post as I have come across jargon and roundabout answers without anything addressing the question at hand.
After being with the Stock Market for about 8years, I can answer this with some basic level of understanding for any individual looking to explore it for providing money equivalent to salary for a calendar year.
So, let me break up the answer in Q&A Format so that it can address most of the queries that can arise out of the Investing linked Income
Question: Can Stock Market Provide Stable Returns?
Question: Is the Stock Market Risky?
Question: How do I guarantee returns?
Answer: In life, nothing comes with a guarantee. Not even job security. Covid-19 has shown this very well.
Question: How to proceed if there is no guarantee?
Answer: My Minimising Risk/Downside. One needs to manage risk. Avoiding it is not possible
Question: How to make money in the Stock Market?
Answer: Stocks are not random numbers on a ticker tape. They are a fraction of the company that you can acquire by paying the quoting price. In short, you become a stakeholder by buying a stock. So, if you find some company that is doing a lot of sales & making profits then rest assured that as a stockholder you will be rewarded due to your ownership.
Question: What will be the form of reward?
Answer: Ownership reward can be in the form of dividends, bonus share issue, rights issue, preferential allotment, buyback, coupons to shareholders (especially FMCG Companies), etc.
Question: What is the quantum of Dividends?
Answer: Dividends come from the cash generated via profit by the company. This can be between 1-10% of the Face Value of the Stock
Question: What is the ideal portfolio?
Answer: Stock Market is not only comprised of stocks(equity) but also its derivatives like Mutual Funds, Exchange Traded Fund, Index Fund, etc. Other than equity, the Financial Market also consists of debt(made up of Mutual Funds, Non-Convertible Debentures, T-Bills, G-Secs, Corporate Bonds, Commercial Papers, etc.), Money Market, and Commodities. So, a portfolio to generate returns should be formed using a mixture of instruments from Equity, Debt, Money Market & Commodities.
Question: Is Trading Advised?
Answer: Despite a lot of popularity, Trading is not a good idea as it involves brokerage fees, tax implications, a small quantum of gains, etc.
Question: Is long-term investment the only option?
Answer: Absolutely not. Short-term buy-sell is also a good option. Buying corrected stocks and selling them for 10-30% profit is a good return in the short term.
Question: What is a Long-Term Horizon?
Answer: Any timelines exceeding the timeline of 18months
Question: When to buy a stock?
Answer: When it has corrected at least 10-20% from its one-year average
Question: Is it worth buying penny stocks?
Answer: Penny stocks are very popular for giving quick & huge returns but one should understand they are pretty illiquid (not possible to sell when you want/need), susceptible to manipulation (internal trading can be easily traced to price manipulation), susceptible to restrictions (ban on trading or sale of stocks by the securities regulator)
Question: Can I quit my job and get into the market full-time?
Answer: It requires money to make money. If you are covered for 6months of living expenses, can spare 10-20% of your yearly salary for investing, and have no obligations (children, parents, loans, etc.), then you are by all means welcome to start your journey.
Question: How do I make money as I do not have sufficient savings or a job?
Answer: As I said earlier, It requires money to make money. Accordingly, take up small freelancing, internships, or part-time jobs to fund your journey.
Question: How much return can I make in a year?
Answer: For Good Stocks, Bull Market(10-20%), Sluggish Market(5-12%), Bear Market (0-10%). Also, there can be years when the annual return is 1-2%. This is possible when the world is rocked by wars, crude oil price hikes, pandemics, or a financial crisis.
Question: How to make money in a depressed year?
Answer: The market swings between equity-debt-money-commodities. Investing in other instruments while equity takes a beating can assure returns. Also, a correction in the price of stocks can provide an opportunity to accumulate and sell out during every rise in the price, thereby making profits.
Through this post, I have tried to answer the trivial queries that any individual may have regarding investing & making money. Feel free to reach out if you read the book and do share your thoughts, suggestions, or criticisms.
Also, I am sharing a small e-book on kindle that is written by me that focuses on making/earning money.
Hope this helps
Happy Reading & Investing!!