Some individuals will go through life without buying a single stock, but until they do, they won’t fully understand the potential risks and rewards of investing. A lot of individuals make money by investing in the stock market, and so can you.
In order to do so, you need to understand and properly implement sound investment strategies that will give you a better chance of making significant returns with fewer losses. Let’s take a look at some of these strategies.
Develop an Investment Plan or Strategy
Before venturing into the world of stock market trading, it’s a good idea to take some time to understand the methods of analyzing stocks and building an investment portfolio. Once you understand the basics, you can begin developing an investment plan or strategy that will guide the trades you make in the future.
Such an investment plan must take into account your financial situation, emotional capacity, investment capital, types of trades you want to make (day trading, swing trading, etc.), and the current climate of the stock market.
If you want to make money from trading stocks, your plan should revolve around buying low and selling high. After developing a plan, have it evaluated by an investment coach or successful investor. Lastly, always stick to your plan no matter what. Don’t be temped by sudden swings in the market.
Image via Flickr by Leonardo DiCarpio
For beginner investors, it’s a good idea to start with low-risk investments like IRAs, index funds, and ETFs. You should also consider mutual funds where you can get instant access to hundreds of different stocks. Diversifying your mutual funds will make your investments more secure. If the stock of a particular company goes down, there will only be a small impact on your investment portfolio. You could still lose your investment capital if the market takes a beating, but thankfully, this is a very rare occurrence. However, it’s more profitable to purchase individual stock. You will earn much greater returns on individual company stocks than diversified mutual funds, but you must pick the right stocks to invest in.
Limit the Percentage of Trades
When starting out in the stock market, it’s best to limit your trades in a single stock to 10 percent or less of your investment capital. Since you are new to stock market analysis, it would be reckless to gamble all of your investment capital on one or two companies. You could end up with significant losses due to unforeseen occurrences, such as PR disasters, new competitors entering the market, or a problem with regulatory authorities. When entering the market, you should make conservative investments and aim to buy low and sell high.
For beginner investors, it’s best to keep a diverse portfolio that contains mutual funds, index funds, and exchange-traded funds. Keeping a balanced portfolio is an important part of a safe investment plan built on passive management strategies, which consistently outperform actively managed funds. However, if you really want to learn how to make money from trading stocks by using more active investment strategies, you should contact an investment coach.