Making Money Consistently In The Stock Market
If you want to make consistent money in the stock market, you can't afford to play it by ear. You have to have a game plan, and you have to be in it for the long haul. If what you're looking for is shortcuts to make a quick buck in the stock market, this is not the article you need to be reading. With this out of the way, let's move on to the ten steps to consistently making money in the stock market.
1. Clearly state your objective. Considering factors such as your age, risk tolerance, number of children, and so on, you will have to define what type of portfolio you're going to build. This is going to be the measuring stick by which you'll analyze every potential opportunity and decide whether or not it's worth going for, as well as when it's time to opt out. Avoid being in the situation where you react to the market, this is rarely good and almost always very costly.
2. Come up with a strategy. Stock market investing tactics and strategies are a dime a dozen. Any Google search or trip to your local library or bookstore will present you with a dizzying array of choices. Faced with such a wide range of options, you're better off deciding on one strategy that you're most comfortable with and that fits your style, and going with it. Leave yourself open to the possibility of making a minor change here and there but have those changes be the exception rather than the norm.
3. Determine potential risks. Make sure that you're able to correctly determine risks that undoubtedly come hand in hand with every opportunity. One way to do so is to look at your potential investments with as critical an eye as possible, and to devise your management plan accordingly. You'll be happy you did because you will be able to minimize your losses even in the event that a particular investment turns out to be a money-losing proposition. Notice how this step comes before profit assessment? This is to make sure you don't get overwhelmed with excitement before you size up the gamble you're taking.
4. Measure profit potential. One way novice investors lose out when they pick stocks that are winners is that they want to make the most money possible by selling at the top of the market. The problem is, there's no sure way to know when that time is. Your best bet is to have set profit thresholds where you sell to at least get your initial money back. You can then take more risks with the rest of the money. Knowing when to get out can avoid you huge losses.
5. Look for other options. You can look around and see if there are any comparable (or better) investments in therms of risk, profit potential, or simplicity of management. This little extra step can simplify a lot of things for you, not to mention make you some extra money in the long run.
6. Evaluate the hurdles. This falls right in line with having an initial strategy that you follow from the beginning. Every time you consider an investment, it will bring about its very own unique characteristics, and its risks. If you have already gone through the process of anticipating those risks, you stand a much better chance of minimizing the risk of losing money.
7. Have your plan B ready. This one relates to point 4 and reinforces the need to have set thresholds, whether you're riding a winner or have to get rid of an albatross loser. You absolutely need to set specific boundaries as to when you should get out of an investment, either to prevent you from losing on your returns or just to avoid losing more money than you already have.
8. Choose the right investments. Investing takes time, so for one last time look over your new project as a whole. Now you've got all the pieces to see the puzzle as if it was completed, and can determine if this investment is really worth your time and effort. And if it isn't, there's no need to dwell on it: starting a new plan is certainly less painful than losing a couple thousand dollars because of an ill-advised investment plan.
9. Aim high. So your mind is made up on an investment, right? Well then just go for it and stop over-thinking things. You've done all the thinking you needed to in the previous steps. As corny as it sounds, if you give everything you got, you'll be a winner regardless of the monetary outcome. Even if you lost money, you won't have lost that much because you've learned to hedge your bets. All you have to do is following through on your game plan and the long term benefits will follow.
10. Debrief. At least twice a year, take a look at your plan and how you've fared in your investments. If somehow you bombed and lost a lot of money, try to figure out what went wrong so that those mistakes don't keep on dogging your investing efforts. Above all, don't give up; if you do, then you won't have any lessons to draw from those mistakes. Keep tweaking things until you find your personal success formula. Once you've cleared that hurdle, you're set.
1. Clearly state your objective. Considering factors such as your age, risk tolerance, number of children, and so on, you will have to define what type of portfolio you're going to build. This is going to be the measuring stick by which you'll analyze every potential opportunity and decide whether or not it's worth going for, as well as when it's time to opt out. Avoid being in the situation where you react to the market, this is rarely good and almost always very costly.
2. Come up with a strategy. Stock market investing tactics and strategies are a dime a dozen. Any Google search or trip to your local library or bookstore will present you with a dizzying array of choices. Faced with such a wide range of options, you're better off deciding on one strategy that you're most comfortable with and that fits your style, and going with it. Leave yourself open to the possibility of making a minor change here and there but have those changes be the exception rather than the norm.
3. Determine potential risks. Make sure that you're able to correctly determine risks that undoubtedly come hand in hand with every opportunity. One way to do so is to look at your potential investments with as critical an eye as possible, and to devise your management plan accordingly. You'll be happy you did because you will be able to minimize your losses even in the event that a particular investment turns out to be a money-losing proposition. Notice how this step comes before profit assessment? This is to make sure you don't get overwhelmed with excitement before you size up the gamble you're taking.
4. Measure profit potential. One way novice investors lose out when they pick stocks that are winners is that they want to make the most money possible by selling at the top of the market. The problem is, there's no sure way to know when that time is. Your best bet is to have set profit thresholds where you sell to at least get your initial money back. You can then take more risks with the rest of the money. Knowing when to get out can avoid you huge losses.
5. Look for other options. You can look around and see if there are any comparable (or better) investments in therms of risk, profit potential, or simplicity of management. This little extra step can simplify a lot of things for you, not to mention make you some extra money in the long run.
6. Evaluate the hurdles. This falls right in line with having an initial strategy that you follow from the beginning. Every time you consider an investment, it will bring about its very own unique characteristics, and its risks. If you have already gone through the process of anticipating those risks, you stand a much better chance of minimizing the risk of losing money.
7. Have your plan B ready. This one relates to point 4 and reinforces the need to have set thresholds, whether you're riding a winner or have to get rid of an albatross loser. You absolutely need to set specific boundaries as to when you should get out of an investment, either to prevent you from losing on your returns or just to avoid losing more money than you already have.
8. Choose the right investments. Investing takes time, so for one last time look over your new project as a whole. Now you've got all the pieces to see the puzzle as if it was completed, and can determine if this investment is really worth your time and effort. And if it isn't, there's no need to dwell on it: starting a new plan is certainly less painful than losing a couple thousand dollars because of an ill-advised investment plan.
9. Aim high. So your mind is made up on an investment, right? Well then just go for it and stop over-thinking things. You've done all the thinking you needed to in the previous steps. As corny as it sounds, if you give everything you got, you'll be a winner regardless of the monetary outcome. Even if you lost money, you won't have lost that much because you've learned to hedge your bets. All you have to do is following through on your game plan and the long term benefits will follow.
10. Debrief. At least twice a year, take a look at your plan and how you've fared in your investments. If somehow you bombed and lost a lot of money, try to figure out what went wrong so that those mistakes don't keep on dogging your investing efforts. Above all, don't give up; if you do, then you won't have any lessons to draw from those mistakes. Keep tweaking things until you find your personal success formula. Once you've cleared that hurdle, you're set.
About the Author:
Before starting to invest, make sure you read our extensive stock market success article. You can also find more financial advice on our personal finance blog, Money Galaxy.
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