Top 5 Stock Market Strategies for Beginners
Venturing into the stock market as a beginner can be intimidating and exciting at the same time, especially if you heard stories about what is insider trading. Many newcomers are unaware of what they should buy, when they should sell, and factors that can affect how much they make or lose. Fortunately, investing in the stock market isn’t as complicated as it may appear at first glance. While it may be true that there is no foolproof rule you can follow to avoid losing money in the stock market, there are several savvy investment strategies you can utilize to significantly improve your chances of success.
Invest as Soon as Possible and Take More Risk
At first glance, you may say, “wait, the idea is to avoid risk.” But, in all actuality, many experts have highlighted the fact that young people do not value the stock market like an older individual because they don’t want to take a certain degree of financial risk. Meaning, most younger individuals who invest in the stock market, ‘play it safe’ so to speak. The word risk has a negative connotation associated with it, but within the stock market, you have what’s known as a risk-return ratio.
It’s important that you minimize your risk of losing money in general. But in the same breath, you have to embrace the risks that are associated with the stock market if you want to get long-term returns. Because, when it’s all said and done, the stock market outperforms other types of investments quite considerably. Experts proclaim that many young people fail to realize that they have the biggest factor of success in the stock market—time. Therefore, don’t shy away from the possibility of taking more risks when it comes to investing in a particular company. This is where diversification can help to balance things out.
Diversify Your Portfolio
We’ve all heard the phrase “never put your eggs in one basket.” But if we were to be honest, how often do we listen to that term? Many people end up with a broken heart or in dire financial circumstances because they placed their eggs in one basket. When you diversify your stock portfolio, you significantly reduce the amount of risk you are exposed to which can help to maximize your returns in the long run.
While it may be true that you can’t avoid certain types of risk such as systematic risks, you can avoid unsystematic risks such as putting all your eggs in one basket. When it comes to investing in the stock market, the last thing you should do, especially as a beginner, is to put your all into one company. In the stock market, there are no sure bets. And, by spreading out the money you invest, across multiple companies, you will lower your chances of losing it all.
Momentum Investing
Momentum investors seek stocks that have a positive momentum that’s going in an upward direction and is on a high trading volume. Stocks that are trading above their 52-week highs are the types of stocks that investors seek if they are implementing a momentum investment strategy. The concept is that said stock will continue to rise, and investors will be able to make a profit by selling their shares back.
Employer-Sponsored Retirement Accounts
One of the most straightforward ways you can get into the stock market is to take advantage of an employer-sponsored retirement account such as a 401(k) plan. With a 401(k) plan, you put a portion of your paycheck into a variety of funds and stocks, where it gradually grows until you reach retirement. Based on the fact that these deductions occur automatically each time you receive a paycheck, it’s a very simple way to automate investing in the stock market, with very little effort on your part. In some cases, your employer may even match your contributions.
Growth Investing
Growth investors focus on investing in growth stocks, which are companies whose earnings will increase at an above-average rate, in comparison to other companies in their industry. Growth investing is highly appealing to new and expert investors because it entails purchasing a stock for an emerging company which could provide impressive returns if the company succeeds. However, in the same breath, these types of companies are untried and pose a significant risk. A prime example would be Tesla. Even though Tesla is 18 years old and reported its first full-year profit in January of 2021, many people continue to invest in Tesla because they believe it will grow to become a dominant player in the industry.