Stock Investment Strategies

 Investing without a stock investment strategy is like searching for a treasure without a map. The correct stock investment strategy should not only define your investment methods, but will allow you to achieve your financial goals within your specified timeframe.

Four factors that determine your stock investment strategy

To determine your stock investment strategy you first will need to know the following:

• Goals - The total amount of money you will need to accomplish your goals.
• Timeframe - The length of time until you need to achieve your goals.
• Risk level - How much risk you are willing to take to achieve your goals.
• Return level - What returns you are you expecting to achieve on your investments.

If you don't know what your financial goals are take a moment right now to write out where you want to be financially in the future. You may want to retire early, pay for college or just live more comfortably. Make sure to attach a dollar amount that indicates how much you need for that goal along with a timeframe you would like to achieve that goal. We all have important goals in our lives that we need to take into consideration when we create a stock investment strategy.

The amount of time that is available to achieve any goal is very important. Simply put if you don't have enough time to achieve your goal based on your current return then you will need to adjust your return, decrease your goal or make your timeframe longer. Having a shorter timeframe can put you into a different stock investment strategy than what you were initially thinking.

Certain goals can be very aggressive for a specific timeframe and that can lead to your risk level being higher than what you would like, but have to have in order to achieve those goals. There is a correlation to risk vs reward in investing and making sure that the higher risk can result in a reward high enough to justify a temporary setback with a losing stock investment.

The return level that is needed to achieve your goals based on your timeframe might not always be what your expecting. If your timeframe is shorter than what you would like to achieve your goal then your returns will have to compensate for the shortcoming. This can sometimes result is a higher risk level than one might be used to.

We have a great online calculator that you can access here investment tools that will help you understand the relationship between your goals, timeframe and returns that are required to reach your goals.

Four questions that will narrow down your stock investment strategy search.

Before anyone can start looking at the different stock investment strategies that are available you should first know the answers to a couple simple questions.

1) How interested are you in becoming more active in stock investing? If you are not interested in becoming more active in stock investing then a simpler, more hands off approach, would be recommended. One of the most simple and effective hands off methods of stock investing would be to invest in the S&P 500 Index and putting a set amount towards stock investing each month. On the other hand, if you want to actively manage your stock investing and pursue higher returns then there are many stock investment strategies that can be selected to best fit your interest level.

2) How much time do you have to manage your stock investments? Certain stock investment strategies require more time than others. Good stock investment strategy shouldn't take more than a few hours per month to implement. If you subscribe to an stock investment service you can lower that time down because they do the most time consuming part of the process the up front research. You can find a good stock investment strategy that can accomplish your goals and within your time that you can devote to managing your stock investments is the key.

3) Are you investing for income or for growth in stock value? In general, you can classify stocks as income stocks or growth stocks. Income stocks produce a dividend during a specific time period such as every quarter, which provides income on a consistent basis. Growth stocks might produce a dividend, but are mainly purchased for growth in stock price.

4) Are you going to invest in individual stocks or some type of fund? Selecting individual stocks will take a more time than just selecting a mutual fund or an index, but your efforts can be rewarded with greater returns. When you purchase a mutual fund or an index you are purchasing a large baskets of stocks that have been pre-selected for you. It does make it easier to diversify, but there is a downside to this theory. There might be stocks that are going through a down period, which will reduce your overall return.

Two basic methods of analyzing stocks

Now that we've touched on a few important questions to ask yourself we can get started with more details about the different stock investment strategies. Stock investment strategies can be split into two main methods: fundamental analysis and technical analysis.

Fundamental analysis is that the stock market can incorrectly price stocks, but eventually the correct price will be obtained through time. The focus is in finding these undervalued companies and purchase them. In turn, they sell the stock when the stock is fully-valued or even over-valued.

Technical analysis rely on charts and indicators that revolve around price and time such as moving averages, volume and relative strength of stocks just to name a few. There are way too many stock indicators to name them all here.

Each type of stock investment strategy analysis has it's advantages and disadvantages. There is no clear winner as to which method is the best. It boils down to your own belief more than the system. It's about what you feel is a valid reason to buy a stock. If you don't believe that a low PE ratio is a strong enough reason to buy a stock then you should not be using that type of system.

How To Invest In The Stock Market

  You've learned the basics about the stock market, but how do you open an account and starting buying stocks? The popularity boom of the internet has made investing in stocks online very easy. You can purchase stocks through a brokerage company or directly from the company who is offering the stock you would like to purchase.

Purchase stocks through a brokerage company

Purchasing stocks through a brokerage company is the most common way to buy stocks. So let's go through an example of opening an brokerage account with ABC Brokerage Company, then buying 250 shares of your favorite stock. For your convience we have a list of some of some of the brokerage companies that are available in our Stock market information page.

Opening a stock brokerage account

The first step is applying for an account and sending ABC Brokerage Company a check for how much you would like to open the account with. After receiving your approving your application ABC Brokerage would then open your account and deposit your check in your account. You can now logon to your account and see when your funds are available for you to start investing in the stock market.

Start investing in the stock market by purchasing your first stock

Once you are able to start investing you put an order in to buy 250 shares at the current price of your favorite stock, which is currently trading at $15.00 per share. ABC Brokerage would then send an order to buy 250 shares of your favorite stock at the current market price to the appropriate exchange that has that stock listed. Every stock is listed under some exchange or some like overseeing entity. The exchange then electronically matches your order to buy 250 shares of your favorite stock with someone who is willing to sell 250 shares of your favorite stock at the current market price. There are other behind the scenes processing steps that are invisible to the end users so we won't even mention them here. Once the match is done your account will send you some kind of confirmation that you bought 250 shares of your favorite stock at $15.00 per share. There you have officially started stock market investing.

Buy directly from the company

Dividend reinvestment plans or DRIPs is a way to invest in individual companies for a lower cost than through a traditional brokerage company. They allow investors to buy stock directly from the company. This is a nice way to invest if you have a small amount to invest and you would like to put additional money towards that stock at consistent intervals of time ($100 per month). For your conveniance we have also created a list of DRIP companies for you to.