By now, you already know that the stock market is profitable. A quick look into the business life of Warren Buffet confirms that to be true.
You might not be Warren, but you stand a chance to make money from the stock market. But just how could you do that?
As a beginner in the stock markets, you have lots of odds against you. From losing your funds to not knowing the best strategy to use, there are many risk factors.
Your success in the stock market starts when you understand the different ways to play in the market and make good profits.
The die is cast between trading and investing in stocks. Both options are good and have at one time or the other, been used by some of the most successful stock analysts.
The primary job you have at hand is to understand the basic things you need to do and how to do them to get the best results.
What Is The Stock Market?
You have heard the word “stocks” many times, but you are not just sure what it means. What do stocks mean and what relevance do they have in the financial ecosystem?
Stocks are the securities that confer on you the right to be a part-owner of a company. This is why the person with the most stock is usually the original founder or current CEO of a company.
Of course, you might not have all the money in the world to acquire many stocks to become the majority owner of a company.
Yet, there are some strategic ways to go about profiting from stocks. You can click to check out more about stocks here.
6 Tips That Will Help You Invest In Stocks
Are you ready to take the bold move to invest in stocks? You know the stock market can pump and dump without any notice, right?
With that in mind, here are the 6 most effective strategies to help you navigate your way in the stock market:
1. Set The Right Foundations
Just like a building constructed with substandard material wouldn’t last long, that is the same way your venture into the stock market might not last.
The first step you want to take is to set your foundation as a stock market investor right. With this in place, the key to succeeding in the market will be easier to turn.
So, what do you need to do to set the right things in place?
What Type Of Trader Do You Want To Be?
There are different ways to play in the stock market. You can decide to be a short-term player or a long-term player. It all depends on your risk level – more on this in the latter part of the article.
The two popular types of strategies here are Investor and Trader. They have different designations. So, understand that before continuing.
On the one hand, a stock market trader is playing more of a “speculative role” by predicting the value of a stock within a few days, weeks, or months. As a trader, you are only interested in making some profits in a shorter timeframe.
A stock market investor is more like “the vulture: a patient bird” because you are ready to wait for months or even years. Of course, this depends on the type of stock you are investing in, as well as its long-term potential.
Do Your Due Diligence
The second thing you must do to set the foundation of your stock market trading right is to carry out series of researches into the parent company of the stock you want to invest in.
Some of the things to check are:
· Return on Equity (ROE)
· Price-to-Earnings (P/E) ratios
· Earnings per Share (EPS)
2. Trading Pattern: Human Or Robo-advisors?
You might not have the time to watch the stock market for effective decision-making. In that case, consider using robots designed to trade stocks on your behalf.
This is both rewarding and risky. As much as the robo-advisors can make important investment decisions, such as rebalancing, they might not work all the time.
3. Stop Sitting On The Fence
There is no better time to start trading or investing in stocks. Now is the best time. So, quit procrastinating and start the process of playing in the stock market.
At the same time, ensure you have a consistent cash flow to keep you going should the market go sideways.
4. Be Prepared To Stomach Your Loss
The stock market, like every other financial market, is pushed by the principle of demand and supply.
When the demand is high, you will earn dividends and take profits from your stocks. But when the demand is low, your portfolio will likely lose more money.
One tactic to deal with this is to be prepared for a downturn so you wouldn’t be taken by surprise or regret your investment when it happens.
5. Choose A Brokerage That Aligns With Your Stock Market Strategy
Not all brokerages offer every stock market service. Some only accept users that want to invest in stocks, while others open their doors to short-term speculators or traders.
Find the brokerage that aligns with your stock market strategy. To inspire you, Acorns Invest is ideal for long-term stock investment. You can also consider using Vanguard, Fidelity, or Schwab if you don’t want to pay commissions when purchase funds.
6. Don’t Put All Your Eggs In One Basket
We saved the best for the last. It is wise to spread your risk exposure in the stock market by diversifying your portfolio. If you have $500 to invest, consider splitting it across 5 stocks by investing $100 in each.
The other concept worth considering for new investors is called Dollar Cost Averaging (DCA). The idea is to buy a stock at different prices. Let’s assume that the Facebook stock (FB) is trading at $150 today, and you have $500 to invest in it. Consider buying the stock at $150, $100, $80, and like that.
This way, you will have lots of Facebook stock (FB) bought at different prices. When it finally increases in value, you will make more profits because you acquired more of it when it went lower than the current prices.
Conclusion
The stock market is not only speculative but risky. As a beginner trader or investor, the risks are much for you. However, the tips shared in this article will help reduce your risks and set you on the pathway to succeed in the market.
