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Strategy for Investing in Stocks

Vladimir's LST System

 Investing   in   stocks  is not like playing a game of blind man’s buff; neither is it a matter of trial and error. If you leave your earnings to chance or luck, you are more likely to lose than gain.

If you want to make money from stocks, you must draw a carefully considered plan. You have to create a stable, long-time, profitable investment strategy. Your broker may have provided you with certain investment tools and facilities, which may include low commissions, automatic investment plans, low cost real time trades, various research tools and easy account management. You can make use of these tools and plans to devise your strategy.

You have to develop your strategy on the basis of your objectives. First of all, you should decide your objectives for  investing   in   stocks . Do you want to  invest   in   stocks  to create an additional source of income? Do you want to make it a full-fledged source of income? How much do you want to earn per month? Are you a long term or a short-term investor? Above all, what is your budget and how often can you comfortably  invest ? If you were a salaried person earning, say, $3, 000 per month, it would not be a good idea to  invest  $ 500 per week. Just decide upon an amount that you can afford easily without having to stretch your resources too far.

Diversify your stock investment

‘Never put your eggs in one basket’ is a time-tested adage. Stock market offers numerous options. Therefore you should follow the concept of diversification in stock market also. Diversification in this context means spending your investment across different sectors and funds. If one sector shows poor performance, your entire investment will not be affected adversely. The risk exposure to a particular investment would be reduced and over all risk to your portfolio will be considerably minimized. To explain it, let us say you have  invested  $1,000 in one  stock  and the prices of your stock fall, you will be losing a substantial part of your investment. If, however, your investment is distributed over a number of stocks, you may gain in some other stocks. Thus your losses will be neutralized to some extent.

 Invest  in ETFs

The best and the most popular options are the low-cost index tracking exchange-traded funds-ETFs. The ETFs are, in fact, securities that track an index or follow the performance of a group of stocks. They trade like regular stocks. The only and the important difference is that you have to pay minimal expenses for trading. It is, therefore, convenient and cheap to buy and sell the ETFs. Since they follow indexes like the NASDAQ 100 or the Standard and Poor 500 to track a bunch of different stocks, they are automatically diversified. The great benefit of buying ETFs is that you can actually buy hundreds of different  stocks  with every dollar you  invest . You have to pay your broker only a low cost investment plan fee that ranges from $1 a trade to $3 a trade.

Fractional Shares

If you think you cannot buy high priced stocks because you are intimidated by their high prices, you may consult your broker. You may be offered a plan in which you can buy fractional shares. In fractional share  investing , you need not buy 100 shares or even one share. You can buy just a fraction of a share. Therefore you can  invest  absolutely any dollar amount with no minimums and buy any quantity of a  stock  or ETF. You can buy a thousand shares or one-tenth of a share through automatic investment plans.

You can buy expensive stocks with small investments. Let us suppose, a  stock  is trading at $200 and you can afford to  invest  only $50 per week. If you use the automatic investment plan offered by your broker, you can buy any fraction of a share at a cost as low as $1 per trade. In this way you can  invest   in   stocks  of over 500 companies with only a few dollars by buying fractional shares of an ETF or any stock for that matter. This is really a revolutionary concept in stock trading.

Vladimir's LST System

Source by Amit Malhotra



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