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How to Play The Stock Market

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How to Play The Stock Market – There Are Many Different Strategies

How to Play The Stock Market

How to play the stock market is dependent upon many factors, including:  an investor’s risk tolerance, the amount of time an investor intends to hold an investment, and an investor’s investment goals, among many others.  How to play the stock market is also influenced by factors such as the age of the investor and the amount of money an investor has to invest.

The traditional way how to play the stock market and a strategy that many investment professionals advise their clients to follow is a buy and hold strategy.  This strategy is just as it sounds, you buy into the stock market and hold until you need to use the money.  The reason why the buy and hold strategy is popular is because over longer periods, such as 50 or 100 years, the stock market has historically returned between 7% and 15% per year, depending up the stock sector that an investor is invested in.  This impressive return on investment includes collecting and reinvesting stock dividends, which can accumulate greatly over time.  However, an investor must be prepared to ride out the occasional stock market corrections to realize significant gains from the buy and hold strategy.

Another popular way to play the stock market and a strategy that is similar to the buy and hold strategy is the dollar cost averaging strategy.  Many people are already using this strategy when they invest in the stock market through their 401-K via mutual funds.  The idea with dollar cost averaging is that an investor buys a similar amount of shares periodically over a period of time and as the market gyrates, the investor will purchase a great number of shares at times when stock prices are low and will purchase a lesser number of shares at times when stock prices are high, thus lowering the average cost of buying shares.  In similar fashion as the buy and hold strategy, the dollar cost averaging strategy requires an investor to hold their stock positions for a long period of time to realize significant gains.

More aggressive investors pursue a number of different market timing strategies.  A market timing strategy involves studying stock market valuation indicators closely, and buying and selling a stock position or an entire stock portfolio based on buy and sell signals.  This strategy is risky and requires a great deal of research and market observance to detect market trend changes that could indicate a buy or sell signal.  For more information about stock market valuation indicators, see:  Advice On Stocks.

How to Play The Stock Market – Other Factors

When considering how to play the stock market and investment strategies, an investor should also consider their age and the amount of money they have to invest.

Generally, younger investors are encouraged to be pursue a more aggressive investing strategy, since they have more time to recover from mistakes and could realize big returns if they are successful.  As investors grow older, they should become more conservative in their investment strategy, which could even mean pulling out of the stock market altogether when nearing retirement age and putting one’s lifetime of investment returns into a safe fixed income investment.

The amount of money an investor has to invest can also influence their investment style.  An investor with a great deal of money may want to pursue an aggressive investment strategy for a percentage of their money, while an investor with a modest amount of money may want to either risk more via an  aggressive investment strategy to grow their money or pursue a more conservative investment strategy to protect the little money that they have.  Ultimately, how to play the stock market is up to an individual’s preference and risk tolerance, but adhering to the widely followed rule of protecting one’s money when nearing retirement age is a good investment strategy for anyone who wants to have their money available during their retirement years.

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