The rising number of Fintech companies and awareness of stock market investment among people results in massive participation of investors in the stock market. Stock market investing is considered as one of the best ways to manage your finances. It would be quite bewildering for you if you are a beginner as the stock market seems complex and risky. But approaching the stock market mindfully with the right strategy would help to begin your journey.
There are several investing strategies that you can adopt as a beginner. Stock market investing covers both kinds of investments – long-term investment and short-term investment. Short-term investment is also known as trading. So, first of all, you have to decide what you should choose with the correct mindset and approach the market.
Now we are diving deep into the stock market investing strategies.
What is the stock market?
The stock market is a marketplace where shares, equities or bonds are traded. For example, there are multiple popular stock exchanges in the world where stocks of mega-companies like Google and Apple are traded. Such stocks are also known as blue-chip stocks. Blue-chip stocks refer to those stocks which are always expected to rise.
As we have discussed above, typically, two strategies are followed in the stock market. These two strategies are long-term investing and short-term investing. Long-term investing is often called a buy-and-hold strategy, and short-term investing can further be classified as scalping, day trading and swing trading.
Apart from these three stock market investing strategies, there are other short-term strategies also. But scalping, day and swing trading are the most common ones and popular among the traders. Detailed Stock Trading guide
7 best stock market investing strategies
Buy-and-hold strategy
This investment strategy is a winner among all strategies because the buy-and-hold approach is the easiest one and does not require enough time to analyse the market. In this investment strategy, investors buy the shares of a company and hold them for a longer period in order to make a huge profit. This is a classic stock market investing strategy.
An investor must hold the shares of the company for at least 4 to 5 years to make a significant amount of profit. The major advantage of this strategy is that you own a part of the company for a longer time and avoid active trading that can affect the returns of many investors in a negative way.
How the organisation or a business grows over a period of time will determine your success as an investor. As we all know, what makes great investor Warren Buffet the top billionaire is the buy-and-hold strategy.
It won’t affect the peace of mind as short-term price movements, uptrends or downtrends, and factors like news, political shift, or a pandemic can never affect you because you are playing the long-term game. Therefore, you must avoid the urge to sell the stock when the market is going through high volatility. This is the ultimate mantra to succeed in this strategy. Do not get distracted by the steep falls and exponential rise.
Understand the power of individual stocks
You can beat the market over time by investing in individual stocks. They will help you to generate passive income for a long time. The significant benefit of individual stock investing strategy is you do not have to depend on fund managers or anyone to manage your finances. Instead, you can monitor the market on your own through your brokerage account.
If you are looking for a broker, you can open your account with the well-regulated brokerage firm PrimeFin. You can simplify your goals by trying out new strategies to invest in individual stocks. You have to evaluate the stocks in regular intervals and maintain your investment portfolio.
Selecting individual stocks for long-term investing can be a good trading strategy. To effectively apply this stock investing strategy, focus on the growth of individual stocks and add a chunk of them to your investment portfolio. There are various ways to approach individual stocks. The most effective one is adding stocks linked with the same sector or industry.
Limit what you invest
This stock investment strategy suggests that you need to limit the amount that you are planning to invest. Instead, use the money that won’t be needed in the next five years. This strategy of asset allocation is widely considered in long-term investing.
Here comes your psyche into play. When you invest the capital that you won’t likely need in the next five years, you spend your hard-earned money effectively and do not think for at least five years whether the market witnesses huge ups or downs and super volatility.
In the early 2000s, the idea was to subtract your age from 100, and the value comes is the percentage of your investable money you need to put in the stock market. But now, the market experts suggest that you have to subtract your age from 110 instead of 100 because the average life span of human beings is gradually increasing, and people started investing at a very young age, that is 18 or 20. So they have a large pool of opportunities in front of them.
Still, you need to allocate your assets carefully by keeping in mind that what you are investing now, you will only withdraw it after 5 years.
Invest in index funds
Other than individual stocks, you can invest in different varieties like index funds. The index funds track stock indices like the Dow Jones Industrial Average, S&P 500 and ASX. In this investment stock investment strategy, you can run behind a lucrative stock index and buy an index fund associated with it.
The popular indices help you to gain exposure to a diversified range of investments. You can choose to invest in various index funds related to a particular industry: Energies, Fintech, Edtech, Banks, etc. By investing in index funds, you become a stakeholder of the market itself.
You can derive great results by buying an index. There will be a high possibility of massive returns when buying index funds combined with a buy-and-hold investment strategy. Index funds help you to build a diversified portfolio that lowers the associated risks. Individual stocks have more underlying risks.
Remember, this strategy involves the collection of stocks. So the return you will get will be the average of all stocks. So it can protect you from various risks. You can also add sweet individual stocks to increase the chances of huge returns. A small portion of blue-chip individual stocks in index investments lowers the risk up to a certain degree.
Dollar-cost averaging
Dollar-cost averaging is an investment strategy that helps to mitigate the risk of making a single investment at the wrong time. Instead of investing all at once, dollar-cost averaging allows you to spread out your investments over time, reducing the psychological impact of market volatility. In addition, dollar-cost averaging takes advantage of shifting costs by investing a predetermined dollar amount at regular periods.
Start investing as soon as you’ve decided that dollar-cost averaging is correct for you. The longer you have to ride out the market’s ups and downs, the better your chances of building a sizable investment account over time. Thus, a long-term investment strategy holds the utmost importance for dollar-cost averaging.
It can be unpleasant to invest because markets rise and fall in unpredictable ways, especially if you’re dealing with a substantial sum of money. On the other hand, it’s difficult to see the value of a major investment plummet in a short period of time, especially if the money has emotional attachments, such as an inheritance.
Dollar-cost averaging can reduce the average price per unit purchased over time, allowing for greater capital appreciation. Ascertain that you have the financial means and the discipline to invest consistently across all markets, regardless of price swings.
When you’re concerned about market volatility, dollar-cost averaging can help. However, it’s also an intelligent habit to invest little sums of money on a regular basis, such as allocating a percentage of each paycheck to an investment account.
The Dollar-Cost Averaging Plan gives investors more freedom by choosing the frequency of their systematic shifts. Investors can use dollar-cost averaging to take a methodical strategy to invest in the markets over time.
Income investment strategy
Selecting investments that will provide a consistent source of income over a set length of time is known as income investing. It’s a common approach to try to beat inflation while chasing decent profits. There are a variety of ways to make money. There are a variety of investors who might be interested in income investing.
There is no hard and fast rule regarding who should employ this type of investment strategy. Fixed income investing aims at providing a consistent stream of income on a regular basis, typically in the form of bond interest payments. There are a number of ways to make money from it. For example, one can invest in dividend-paying firms and hope that he/she picks the right ones at the right moment.
You can invest in real estate passively in so many ways, including purchasing publicly listed stock in real estate-related businesses. Real estate development firms and construction firms are examples. Managed funds are a great way to invest in income since they hold a basket of well-chosen assets to spread risk. However, this approach is riskier than purchasing a pre-managed fund.
Fixed income investing has the advantage of providing investors with a consistent stream of income over the life of the bond while providing the receiver, such as a business, with instant cash or capital. In addition, fixed-income. However, your investments are designed to provide investors with a less hazardous alternative to equities.
There are a variety of investors who might be interested in income investing. Investors who are looking to establish a stable financial future over the long term can choose to reinvest dividends, which will give the majority of overall returns.
Short-term investment strategy
There is not a single short-term investment or trading strategy. You can get your hands on different timeframes trading such as scalping, day trading and swing trading. Scalping is a strategy of making short profits by taking advantage of small price movements throughout the day.
In day trading, you can open your position anytime during the day but exit your position before the market closes. Lastly, in swing trading, investors or traders rely on long timeframes from hours to weeks and even months.
Bottom Line
There is a wide range of stock market investing strategies that you can use to earn massive profits. But investors must keep a close eye on underlying risks to reduce the potential losses and maximise their returns. You can diversify your portfolio with the strategy of ‘not keeping all the eggs in the same basket’. A well-diversified portfolio can help to yield impressive results in the long term.
If you are searching for that one investment strategy that can help you to reach your highest potential, then you have to find it on your own by trying out the above strategies and stick to the one that works best for you.
