5 successful stock market strategies for newbie investors

Highlights

  • Volatile market conditions require dynamic and evolving strategies.
  • There’s always a chance of losing money in the short run while investing in stocks or bonds.
  • While trading, new investors should avoid investing all their money in one particular asset class.

In a layman’s language, stock trading refers to selling and purchasing stocks to capitalise on the stock price. However, stock prices fluctuate due to different market conditions. This ever-changing tendency of the stock market demands dynamic and evolving strategies.

Five successful stock market strategies for newbie investors

For a new trader in the investment world, things may be difficult to understand initially as it won't be easy to understand the market pulse because of volatile conditions. But few proven strategies can lead to good returns.

Given below are 5 top stock market strategies for newbie investors–

1.    Buy and Hold

This is a proven classic strategy where investors do exactly what the name suggests. Investors buy a share and hold it indefinitely. Ideally, the investors never sell the shares, but they should own it for at least 3 to 5 years.

This is a long-term strategy where successful returns depend on the business performance over time. And this is how you earn the stock market’s biggest winners. However, investors need to avoid the temptation of selling during market downturns to succeed.

 

2.    Limit the active stock trades to 10% of portfolio

While dealing with stocks, beginners should try to keep the stocks equal or below 10% of their total portfolio. Putting every egg in one basket might lead the investors nowhere, where their success can quickly be halted by single regulatory problem or new competitor.

Investment arrow chart

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3.    Value Investing

Value investing is an investment strategy where traders pick those stocks that appear to be trading below their book or intrinsic value. Also known as – security margin of safety, this was introduced by – Benjamin Graham (Known as the father of value investing).

 

While this strategy ensures less risk and volatility, it is often difficult to estimate the intrinsic values. Hence, in the end, new investors need to take decisions based on their research, analysis, and judgement skills. 

4.    Income Investing

Income investing is centred on building an investment portfolio to maximise annual earnings. This strategy's sole purpose is to generate a constant stream of income, which can be from cash pay-outs – often - dividends or bonds.

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Part of the return comes in the form of hard cash that can be utilised for anything where the investors can enjoy the benefits of capital gains in addition. Beginners can quickly implement this strategy using index funds. But while investing in individual stocks, it is important to remember that companies can also cut their dividends to zero.

5.    Dollar-cost averaging

It is an investment strategy where an investor periodically invests a set amount of money regardless of the market price of the securities. Often associated with passive investment strategies, this strategy can be applied to all types of securities. 

By spreading out the buy points, investors can avoid the risk of investing all their money in at once. Using this strategy, investors can get an average purchase price over time. 

While investing with this strategy, new investors should also remember that dollar-cost averaging also prevents them from buying at the lowest price when it helps to avoid buying too high

Bottomline

While a good investment strategy reduces risk while optimising potential returns. But it’s always important to remember, that investors can still lose money in the short run while investing in stocks or bonds. Also, newbie investors should remember that – a good investment isn’t a – get rich quick scheme. Hence, it’s important to start with realistic expectations and simplify the process by sticking with one popular investment strategy.

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