Long Term Approach To Stock Market Riches
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. Weigh probable risks. It is absolutely essential that you highlight the risks your investment will bring up with a realistic view, not an overly optimistic one. The management system you choose must bring effectiveness and practicality to the table, so that you can bring the risk of losing money to a minimum, even if the investment turns out to be a dud. Also, it's important to complete this step before looking into what kind of profit the planned investment can bring you. If you reverse the order, you run the risk of being so excited over the money you might be making that you could overlook some serious risks.
4. Think about profit potential. One of the hardest parts about investing is knowing when to cash out once you're riding a winner. You should have a set threshold where you sell off enough to at least recoup your initial investment, and then ride the profits as long as you can. Know when and how to get out.
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. Analyze the obstacles. If you did go through the trouble of having an initial strategy, you will find that this step is a natural continuation of it. By anticipating the possible shortcomings of every investment, you put yourself in the position of doing just that.
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. Go for the gold. Once you decide to pursue an investment, don't second guess things. Give it all you've got and you'll probably come up a winner. Yes, it does sound clich, but even if things don't pan out for that investment, you won't be that big of a loser either because you had limits in place to limit your losses (see points 4 & 7). Steadfast resolve to follow your game plan will give you the best returns in the long run.
10. Debrief. At set intervals, go over your plan. If a couple of missteps here and there cost you a lot of money, try to identify them and make sure that you don't keep repeating them. Don't give up: we learn more from our failures than from our successes. Hang in there, make small changes; keep what works and discard what doesn't until you all your personal success ingredients come together and you carve out your very own formula for stock market riches.
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. Weigh probable risks. It is absolutely essential that you highlight the risks your investment will bring up with a realistic view, not an overly optimistic one. The management system you choose must bring effectiveness and practicality to the table, so that you can bring the risk of losing money to a minimum, even if the investment turns out to be a dud. Also, it's important to complete this step before looking into what kind of profit the planned investment can bring you. If you reverse the order, you run the risk of being so excited over the money you might be making that you could overlook some serious risks.
4. Think about profit potential. One of the hardest parts about investing is knowing when to cash out once you're riding a winner. You should have a set threshold where you sell off enough to at least recoup your initial investment, and then ride the profits as long as you can. Know when and how to get out.
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. Analyze the obstacles. If you did go through the trouble of having an initial strategy, you will find that this step is a natural continuation of it. By anticipating the possible shortcomings of every investment, you put yourself in the position of doing just that.
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. Go for the gold. Once you decide to pursue an investment, don't second guess things. Give it all you've got and you'll probably come up a winner. Yes, it does sound clich, but even if things don't pan out for that investment, you won't be that big of a loser either because you had limits in place to limit your losses (see points 4 & 7). Steadfast resolve to follow your game plan will give you the best returns in the long run.
10. Debrief. At set intervals, go over your plan. If a couple of missteps here and there cost you a lot of money, try to identify them and make sure that you don't keep repeating them. Don't give up: we learn more from our failures than from our successes. Hang in there, make small changes; keep what works and discard what doesn't until you all your personal success ingredients come together and you carve out your very own formula for stock market riches.
About the Author:
Before starting to invest, make sure you read our extensive stock market success article. You can also find more general finance advice on our personal finance blog, Money Galaxy.
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