How do you make money in stocks? Ask 10 different stock market experts that question and you’ll get 10 different answers. Most likely, they’ll all be right to some extent (though a couple of them may be wrong).

The deeper you get into the investment market, the more complex it becomes to find ways to make money in stocks. That’s because there are so many varied opportunities for success in the stock market, that naturally, there are also many competing theories as to how to profit from the stock market.

That said, there are a few fundamental practices and mindsets that every stock investor needs to keep in mind, no matter what condition the securities market may be in. Learning how to make money in stocks is mostly a matter of understanding some common, everyday realities about the marketplace that can set you up for extended future success.

what are key stock market approaches

Know How Much Risk You Can Tolerate

Investing in the stock market isn’t as risky and dependent on chance as straight-up gambling, but there’s always some risk involved.

While it’s rare for a long-time, blue-chip company to become nearly worthless in value, it has happened. Nokia was a telecommunications giant in 2000 when its per-share price was more than $58. Just 12 years later, that price dropped to less than $2, and Nokia has yet to recover. As investment bankers, Lehman Brothers sold shares for more than $128 per in 2006; three years later, after the 2008 recession bankrupted them, that price plummeted to under 3 cents. Now, their stocks are priced at close to 13 cents.

Such devaluations of “too-big-to-fail” companies are very unique occurrences, of course. They’re usually traced back to spectacularly bad leadership decisions, especially in Lehman Brothers’ case. But they serve to indicate that there’s always an inherent risk in stock trading. The question an investor has to ask him or herself isn’t whether the stock market is risky (it is), but how much of that risk they can stomach.

Nokia and Lehman Brothers notwithstanding, most blue-chip companies are reliable investment opportunities. This is especially true if they’ve been around a long time and have survived multiple economic downturns. Their returns on investment are dependable — not always huge, but consistent to the point where you won’t lose money and might make incremental gains from time to time. They’re ideal for investors who have low risk tolerance.

Other investment opportunities come with higher risks. It could be an upstart technology company working on an innovative product that could change the game — but they may not have their marketing strategy fully in place or are running up against some obstacles to growth at the moment. There’s still a chance that they could explode in value at some point. If you’ve been investing in Amazon since the 1990s when the business was far from a sure thing, you’re probably pretty happy with how that turned out for you! Such investments appeal to traders with high risk tolerance.

It’s possible to profit from the stock market no matter how much risk you can tolerate; it’s a matter of producing the right strategy for low, high, or mixed levels of risk tolerance. But before jumping into the market, it’s very important to come to an honest conclusion about what level of risk you can tolerate.

Stay in the Game

When someone asks, “How do you make money in stocks?” they may be thinking in terms of a fast and profitable turnaround. But the stock market isn’t the place for get-rich-quick schemes. It wouldn’t have lasted as long as it has if it were.

Investments take time to reap rewards. Companies build their businesses progressively, making long-term plans to ensure continued economic growth for the future. When investors buy into these companies, they need to take the same approach.

That’s why it’s important to stay invested in the stock market. Over the long haul, if you make the right decisions, it will pay off. Yes, there have been economic downturns and “corrections” in the recent and distant past, some of them quite severe. But the market has always recovered. Those who gave up when adverse conditions appeared made their losses permanent. Those who stayed active eventually regained their losses and many have experienced exponential growth in their holdings.

That’s not to say that it’s impossible to profit from short-selling or brief market trends — it’s risky, not impossible. But a wise investor knows that it’s vital to stick with the market through its darkest hours, not to back out of an overall stock strategy when times get desperate.

Whether you engage in low-risk, long-term investments or make a series of more profitable, micro moves (optimally both), the key thing is to commit to a continued, persistent presence in the investment market. Ultimately, that is how to make money in stocks.

what are key stock market approaches

Make Regularly Scheduled Investments

Many regularly employed workers set some of their earnings aside for savings, whether it is in an interest-generating bank account, an emergency fund, or some other kind of nest egg. When they get their paycheck, they keep some money around for everyday living expenses and put the surplus away to save.

Think of your stock portfolio as a savings account — albeit one with more potential for additional income than the standard savings account you get at a bank. The more you put into it, the more you’ll get out of it.

That’s why it’s just as important to keep a regular schedule for stock investments. If you can only afford to set aside $100 a month — or even just $10 a week — to invest in stocks, that’s far more advantageous than making a one-time, $1,000 investment and leaving it there.

Put Money into a Couple of Blue-Chip Stocks — and Leave It There

The stock market is almost impossibly diverse. There are plenty of mechanisms and strategies that can help you to profit from it. But it’s a very good idea to reserve at least some of your money to invest in large-cap, market-defining companies that have been around for a long time with consistently profitable track records… what we call “blue-chip” stocks.

Investing in one or two blue-chip stocks gives you a solid, low-risk foundation for the rest of your stock activity. Although there’s less of a chance that you’ll experience a sudden, massive profit from this safer kind of investment, there’s a great chance you’ll make sizable profits over the long term.

Blue-chip stocks are as close as the market comes to set-it-and-forget-it investments. If you leave your investment alone for a while, it will grow at the same rate as the company does. It’s also a good decision to do so for tax reasons. Short-term capital gains from stocks you’ve owned less than a year are subject to higher tax rates than long-term investments.

Diversify Your Portfolio

One of the strongest tactics for making money in the stock market is to invest in multiple commodities, covering a variety of different companies and a wide range of business sectors. This is called “diversifying” one’s portfolio. Diversifying is more of a protective strategy than a profit-making strategy — but in the stock market, protection can lead to profits.

If you leave all of your investment money in one company and one alone, you’re tying every bit of your cash into the fortunes of one entity — putting all your eggs in one basket. That’s risky, no matter how successful that company remains. You’re limited to a range of outcomes for only one corporation. Imagine if you only owned stock in a single company like Enron, Washington Mutual, or Blockbuster Video, and never investigated other companies to invest in. You wouldn’t be in great shape now.

Additionally, having multiple investments in several different business sectors is always a smart move. It lessens the blow to your portfolio’s value in case of an industry-wide recession or downturn. If you owned nothing but tech stocks when the dot-com bubble bust in 2001, you probably lost a ton of money. But if you also owned shares in healthcare, industrials, energy, or retail stocks at the same time, you’ve likely suffered much less. Diversifying your portfolio spreads risk so that a single event won’t wipe out all your gains.

what are key stock market approaches

Research, Research, Research

Even with set-it-and-forget-it stocks, investors need to stay updated on their commodities. When you want to expand you portfolio or invest in a newer company, it’s important to consult as much relevant information as you can before you decide.

The modern, self-guiding investor has a ton of resources to get that kind of information, far more than ever before. With just a basic web search, you can learn about any public company’s complete financial profile — annual earnings, net expenses, price-to-earnings ratios, trading volume, and much more. We used to pay stockbrokers hefty commission fees to stay on top of that info; now, it’s almost universally accessible.

If you have an online brokerage account, you likely already get news alerts for all the companies you invest in. You can also set up a watch list for companies you’re interested in. Whatever means you use, be aggressive about finding out all you can about the commodities you hold and the ones you’re considering buying.

Eliminate Irrationality

Maybe there’s a new, groundbreaking company that just had its IPO event. The opportunity to invest in this company may feel exciting. Or perhaps you’re getting extremely nervous about a market downturn that’s lasted more than a day or so — even a week — and you’re scared that if you don’t cash out now, you’ll lose a huge chunk of your investment.

Both of these reactions are examples of letting emotions drive your stock purchasing decisions, which is one of the worst approaches an amateur stock investor can take. You’ll encounter a lot of good and bad “hunches” in your stock investment career. In no situation should a “hunch” be the only driver of your investment decisions, no matter how much you trust your instincts.

If a hot stock feels promising, research everything you can about the company — its leadership, its fundamentals, its business approach, and whatever financial history it may have. Do the same thing if one of your stocks is suffering through a downturn.

There are lots of components to a successful stock portfolio — and yes, occasionally, luck is one of those components. But rational, measurable, analytical, real-life data will always be the most critical component. It will always triumph over lucky guesses or unformed hunches. Don’t let feelings guide your decisions.

what are key stock market approaches

How to Make Money in Stocks

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