Selling short, price to earnings ratio, bear market, bull market, dividend, yield, market capitalization; stock market terms can be a mouthful isn’t it? There is a lot to get into your head when investing in stocks, which can be very costly if you hop into and out of positions frequently.
Here are tried-and-tested methods to invest in the stock market:
1. Blue Chip Stocks
Investing in blue-chip stocks is a low-risk strategy to build your wealth on the stock market. Blue-chip companies are generally leaders in their fields, have been in business for decades, have market capitalization, value in the billions, and are run by seasoned managers with a track record for delivering stable growth and returns.
2. Penny Trading
Investing in blue-chip shares offers low risk and but also low returns. Penny stocks are the opposite – these are high-risk or 'speculative' investments because the companies behind them are relatively young, have low market capitalization, and even unproven management teams.
If you have a thirst for knowledge and enjoy spending time researching emerging products, technologies, and markets; penny stocks provide opportunities for significant increases in share values within the space of a day despite the high risk for loss.
3. Day Trading
Day trading is about buying and selling penny stocks in a single day or several times a day to make money from ‘intraday’ [the buying and selling of shares on the same day] price fluctuations on the share market. Buy low and sell high is the nature of the game.
However, only a small number of day traders know exactly when to buy stocks and when to sell to build long-term wealth. The secret? Insights drawn from reliable news sources, analysis software that places charts and tools in anyone's hands, as well as lots and lots of practice.
4. Position Trading
Also known as a buy-and-hold strategy, position trading is a more passive investment strategy than trading. You buy stocks and hold them for a long period of time, regardless of fluctuations in the market. This requires patience and regular, careful decision-making. The aim is to spot trends in the market and capitalize on these.
Position traders jump on a trend when it starts and ‘exit’ the position once a trend is established. A position on shares may last for several days, months or even years – it depends on the trend. Legendary US share market investor Warren Buffet recommends buy-and-hold strategies for investors seeking healthy long-term returns.
5. Recessionary Trading
A recession is part of the normal business cycle when there is a general economic slowdown. Buying shares during a recession or bear market, when the majority of investors are selling and the risk of company bankruptcy is higher, requires nerves of steel and eagle-eye insight to identify opportunities to pick up high-quality stocks at discounted prices.
Once the economy moves from recession to recovery, recessionary investors unload their shares. If you have a taste for risk and an eye on the bigger picture, recessionary trading can offer the best opportunities to make money from financial markets
6. Dividend Investing and Mining
As the name suggests, dividend investing focuses on stocks that pay dividends – regular, scheduled cash payouts drawn from a portion of the company's earnings. Dividend investing lessens some of the risks of investing in the share market because even if the price of a stock goes down, as an investor, you’ll receive something.
Dividend mining can be understood as day traders' version of dividend investing, where shares are typically purchased several weeks before the ex-dividend date and sold after the dividend is issued. The secret is knowing the most profitable times to enter and exit a position.
7. Invest in Mutual Funds
Mutual funds are not exactly stocks but they are popular alternative for DIY investors. A mutual fund is comprised of several investments (e.g. stocks, equities, money market, etc.) with several investors pooling their funds together to invest. Think of it as a band where one is a vocalist, one is a guitarist, another plays the drums, others are back-up singers.
At their core is their music and together they are able to perform; and like bands that have a manager who manages their performances, mutual funds have a professional manager who oversees the fund’s performance to ensure profitability. Look at Sun Life Asset Management Company, Inc’s. (SLAMCI) mutual fund products, which allows you to invest in portfolios that fit a variety of risk profiles. You can choose from low-risk, low-yield government bonds to high-risk, high yield equities. It all depends on you and your risk profile.