This is my lazy, but practical approach to passively investing in the stock market for free. I’ll provide insight into how I used Robinhood as a passive income tool to generate $1,148.63 in a few months.
This is the bare minimum strategy, and it requires minimal effort or money to do.
I put a few hundred dollars into the market and only invest in stable blue-chip stocks with low volatility. This is the long strategy — the more money you have, the easier it is to grow your portfolio over time. It’s not a strategy for getting rich quick, but it’s an effective way to generate a few dollars per day that will grow over time.
Step 1: Download Robinhood
Here’s a breakdown of Robinhood’s fees compared to competitors. With no commissions or minimum balance, it’s a no-brainer that Robinhood is the way to go. Download it here and we’ll both get a free share of a random stock. It could be a stock like Apple, Ford, or Sprint. 🤑
Step 2: Deposit money to invest
Start by depositing what you’re comfortable with and can afford — then make it a routine to deposit on a regular basis.
Robinhood has no minimum account balance which is great for newbies. Keep in mind though that most of the companies you’re familiar with like Apple ($APPL), Microsoft ($MSFT), Google ($GOOG), and McDonald’s ($MCD) don’t have cheap stocks.
I recommend investing as much as you can afford — I deposited $1,000 to start then added on from there.
The more you put in, the bigger your returns will be. To put in perspective what I mean, I deposited a little over $1,500 and generated 73% returns — If I had invested $100,000 then as of writing this I would have $173,000. It’s too bad that hindsight is 20/20 and I don’t have $100,000.
I try not to get too excited or upset when the market is up or down because there are many aspects that can affect market conditions and returns.
I’m sure you’ve heard someone’s horror story about how they lost it all during the 2001 dot-com bubble or 2008 housing crisis. Plenty of people got burned during these hard times and many of them never touched the stock market again as a result.
There are two sides to the coin though, there were also many who were able to create massive wealth during these times by grabbing up stocks at a fraction of the price.
For every bear market a bull market is just ahead on the horizon. Here’s a graph showing the result of every bear market since 1949.
Now can you see why Warren Buffett says he likes to be greedy when others are fearful?
Step 3: Set goals and have a strategy
Alan Lakein said failing to plan is planning to fail. Having an investment strategy will keep you on track and make sure you stay the path even when things aren’t looking up.
Your strategy should include the time-span of your investments and your risk tolerance.
If your strategy is to bet on the long-term growth of a company, then don’t let your emotions get the best of you in the short term. It’s easy to be reactive while you watch the value of your portfolio drop, feeling that if you don’t sell then your fortune is sure to be lost. Hold tight though, quickly the mood can switch from fear and despondency to exuberant optimism.
Strategy 1: Focus on how not to lose money rather than how to make it
Focus on avoiding losses instead of trying to make big gains.
Let’s say you invest $1,000 and lose 50%, leaving you with $500. You might think a 50% gain will get you back where you started, but 50% will only yield a $250 return leaving you with just $750. In fact, you’ll need to make 100% returns just to get back to where you started.
True, the higher the risk, the higher the reward, but don’t treat your Robinhood account like a craps table.
Follow Warren Buffett’s two rules of investing:
- Rule #1: Never lose money
- Rule #2: Never forget rule number 1
Strategy 2: Use falling prices to your advantage
Why? Because the stock market isn’t looking at today. The market always looks to tomorrow. What matters most isn’t where the economy is right now but where it’s headed. And when everything seems terrible, the pendulum eventually swings in the other direction.
Tony Robbins. Unshakeable
As I mentioned before and will continue to reiterate, go long! Your portfolio is going to fluctuate based on market movements but in the long run, there is no bad time to invest.
Strategy 3: Diversify, don’t put all your eggs in one basket.
Diversification is a common practice that no smart investor will argue against. Hedge fund manager Paul Tudor Jones uses a five-to-one rule where he invests only if he can expect to earn 5 times his initial investment. By following this rule if you make 5 investments and fail 80 percent of the time you still come out even.
Let’s do some quick maths using the five-to-one rule. Let’s say you make 5 investments of $1,000 each. Only one investment needs to make 5x returns for you to be back where you started. If you’re right 3 out of 5 times then you’ll earn $15,000 and only lose $2,000.
Diversify intelligently. Don’t put all your money in one stock and don’t put all your money in one sector either. Just because tech is hot right now doesn’t mean it will be forever.
Step 4: Find stocks to invest in for the long-term
The strategy that I recommend is to invest in companies that you believe in. These are established household names that won’t disappear overnight. If you’re downloading Robinhood on your iPhone and plan to continue buying iPhones in the future, then consider buying shares of Apple.
A simple shift in mindset will turn you from a consumer to an investor. Invest in companies that you believe in and you can rest assured that your money won’t disappear.
When investing long, you can forget about the money tied up in your investments and still have access to it in case you should need it. I personally find it easier to save money when it’s not readily available to me or being stored in my checking account. If it’s not within arms reach, I’m less likely to go out of my way to spend it. That could be just me though…
Legendary investor Tony Robbins recommends that you think of investing like a tax. If the government introduced a new tax for $10 a week, you’d kick and scream but still be forced to find a way to pay it. Use this same mindset to be self-disciplined and impose a tax on yourself to invest on a regular basis.
Warren Buffett has harnessed the power of compounding interest to amass a fortune that now stands at $65 billion. What’s his secret? It’s simple, says Buffett: “My wealth has come from a combination of living in America, some lucky genes, and compound interest.”
What’s compound interest?
If you invest $10 a week, $520 per year, and average 10% annual returns on your money then you’ll have $10,464.95 in 10 years instead of $5,200. Isn’t compounding interest the best?
- Step 1: Download Robinhood
- Step 2: Deposit Money to Invest
- Step 3: Set goals
- Strategy 1: Focus on how not to lose money rather than how to make it
- Strategy 2: Use falling prices to your advantage
- Strategy 3: Diversify, don’t put all your eggs in one basket.
- Step 4: Find stocks to invest in for the long-term