- You need to identify the amount of time until you require the money before you invest. Is the money for short term needs? If so, run as fast as you can to purchase an investment in a fixed product. Short-term money doesn't have time to recoup any losses if the market drops suddenly. You might be able to make a few dollars more, at certain times, but you also can lose your money just as easily.
- While the history of the stock doesn't always predict the future, you can learn a lot from looking at the past prices. Many investors use this technical method of stock analysis. Some stocks have a cycle where they rise or fall on a regular basis. If you know this, it relieves your mind when the stock takes a dip. While you can't time the market or any one stock, if you purchase at the normal low for the stock, those peaks and valleys don't bother you.
- Even though there are some unexpected events in the stock market, normally the large cap stocks tend to be far more stable than small caps and micro caps. The term caps stands for capitalization, the amount of money that the company is worth. Large caps tend to be companies that have been in existence for a long time. Many of the small and micro caps are new to the market place or start up companies. Small caps and micro caps can grow geometrically but they also can drop off the face of the earth. It only takes a sluggish economy, a bad year or a bad decision to wipe out a start up company.
- You need to balance your stocks with not only bonds but also fixed products. Normally, when the economy is robust, stocks rise so the Feds increase interest rates to slow inflation. An increase in interest rates makes the value of the bonds drop, since investors can purchase new ones with a higher rate. The reverse is also true, when the economy is slow, normally the market drops, the Feds lower interest rates and the price of existing bonds with higher rates increases. If you constantly scrape the profit from the investment that grows to rebalance the percentages, you protect your growth because at some point, the trend reverses.
- You don't need to have a dramatic growth pattern to make money in the stock market. If the market drops like a rock, options offer another route to create money from stocks. Buy a put on a stock or sell a call option on a stock you own, if you believe the price will drop. When you purchase a put option, it gives you the right to sell a stock at a specific price. You don't have to, but the writer of the option has to honor it if you choose to do that. If the strike price, the place where you exercise the option, is $10 and the stock price drops to $4, you simply buy the number of shares and exercise the option or sell the option for a profit. If the price doesn't drop, you're out the money for the option, which is a small fraction of the cost of the stock.
- If you love to gamble and think day trading would be fun, don't do it. Instead, take a small percentage of your money and find a stock with a history of short swings over a few days that warrant enough to make money after you consider the cost of the trade. When you invest smaller amounts of money, the cost of the trade eats into your profitability. Divide the cost of the in and out trade by the potential profit from the swing. That's the number of shares you need to purchase just to break even. Decide whether you can purchase enough shares to provide a modest profit of 1 percent. If so, simply buy and sell the stock until the swing closes or you notice a change in the pattern.
- The stock market isn't for everyone but it can provide a nice income even for those in retirement. Stocks provide income from dividends as well as from growth. If you purchase a dividend producing stock, there's no guarantee that it will continue to profit and produce dividends for its investors, but normally stocks with a good history do. Besides the dividend, you also have a potential for the price to increase and, if you choose, you can sell it for a profit.
