6 Ways to Invest in The Stock Market

​Within the stock market category, there are several strategies to choose from.

​Holding periods range from the very long term to the very short term. Levels of complexity range from very simple to very complex. Rates of return range from very low to very high. There is no shortage of choice. For example: 

• Buy-and-hold strategies (such as index investing, dividend investing, value investing)
• Buy-and-sell strategies (such as growth investing and trading)
• Seller strategies (such as shorting stock and options selling)

​The vastness can be overwhelming or it can be mesmerizing.

​You can take it one step at a time, or go all out. It depends on where you are in your investing process and how you like to experience learning. The strategy you choose for yourself will depend on your risk tolerance, where you are on the learning curve, how much liquidity you have available, how involved you want to be, and how much time and effort you want to dedicate to it.
 
When we start diving into the topic, we find every expert has what they refer to as the best formula to ensure the growth of our portfolio to secure our retirement. ​

​Who are we to believe? Those who say investing for the long term is the best way to go, buy-and-hold no matter the fluctuations, or those who say when we’re in a profit situation take the gain off the table and invest it somewhere else. For someone who is starting out, these types of contradictory statements from authority figures can be very confusing. Up until I began my serious study of the stock market, all I knew really is what we hear in the media: That if you buy-and-hold for the (very) long term, chances are pretty good that you will do okay. ​

​When you begin to learn about it, you may become confused with all the contradictory messaging. This is part of the normal learning process.
 
I discovered the infinite number of potential approaches to building a portfolio with all the subscription newsletters I followed, the books I read, the training I bought, the webinars I watched and the people I met. For example, one expert promotes holding only 10 stocks at a time with trading to take profit regularly while another suggests index investing with a forever holding period as the best way to go. Another recommends we allocate 80% of our portfolio in secure investments with 20% for higher risk investments. Some say buy gold; others say don’t buy gold, buy something else instead. And on and on it goes. Then there’s the whole business of which information is most relevant when the time comes to make a buying decision.

Then you wonder, what’s better, fundamental analysis or technical analysis? ​It is clear by the observation below that there is no such thing as the absolute best approach.
​

“The methodologies employed by the
market wizards cover the entire spectrum from purely technical to purely fundamental – and everything in between. The length of time they typically hold a trade ​ranges from minutes to years.”
—Market Wizards, P.439

When I began my book project, I interviewed quite a few people for the stock market chapter, nine in total, because I was eager to learn all that I could. I’m glad I did because I discovered the many approaches that exist and I can now share the learnings with you. It was fascinating for me to learn about each person’s experience and how they approach the market, for example, long-term investors believe day trading is too risky while day traders believe holding stock is too risky. Recently, I began to learn about option selling strategies and I found out that option sellers believe owning any stock at all, for any length of time, is too risky. Interesting!

As you can see, risk is relative and in this case, it depends on which strategy a person favors. Here is an overview of the most common strategies: 

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​While some of these strategies may be too advanced for you at this time, the fact that you now know about them gives you something you can build towards, if you choose it.
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​You can be as involved as you want to be. If you want to start investing in the stock market right away, but your experience is minimal, I recommend you start small, slow and simple. You can build up your skills from there.
​

Here are some great books that will get you started. The first one, on the topic of index investing, is the simplest of all strategies, and it is generally the safest because an index fund normally includes a basket-full of stocks (this acts as a risk mitigation strategy).

​

Index Investing

• John C. Bogle, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns, John Wiley and Sons Inc., 2007.

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Value Investing

• Benjamin Graham, The Intelligent Investor: The Definitive Book on Value Investing, HarperCollins, 2003.
  
  
• Robert G. Hagstrom Jr, The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, John Wiley & Sons, 1994.​

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Dividend Investing

• Charles B. Carlson, The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns, John Wiley & Sons, 2010

The Growth Approach

• Peter Lynch with John Rothchild, One Up on Wall Street: How to Use What You Already Know to Make Money in the Market, Simon & Schuster, 2000

The Balancing Approach

• William Bernstein, The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk, McGraw-Hill, 2001

The Trading Approach

• Jack D. Schwager, Market Wizards: Interviews with Top Traders, John Wiley & Sons, 2012.
  
  
• Martin Schwartz, Pit Bull: Lessons from Wall Street’s Champion Day Trader, HarperCollings Publishers, New York, 1998​