Investing in the stock market may have some risks involved but believe it or not it is safer than most people believe. Yes markets tend to go up and down but this not a bad thing really. When the stock market takes a down turn it will quite often take the good solid stocks with it. This is a good opportunity to buy stocks at a lower rate. I hear people referring to GM going bankrupt using that as an example of why not to invest. There was a lot of warning long before they went bankrupt to know their finances were in trouble allowing you to get out long before their demise.
I personally am not a buy and hold type investor. There have been many occasions where I wish I had of held on but there have been just as many occasions that I am glad I sold when I did. From my ups and downs I have come up with a simple strategy that allows me to hold with less risk. It works like this. I look for stocks with solid finances that have a history of going up and down. When they go down I buy a lot and will sell most of them at modest increases and hold the rest for larger gains.
If I buy 2000 shares of ABC for $ 5.00 per share it equals $ 10,000. If it goes up 5% to $ 5.25 I would sell off 1800 shares leaving me with 200 shares to hold until it reached my desired sell level. My cost would be $ 2.85 a share including commissions. The sell level would be determined by how high it has sold in the past. If it sold at $ 8.25 in the past I would be looking to sell around $ 8.00. Why don’t I hold all of it until it reaches this level? One it may take a long time, and two it may go back to $ 5.00 again before it goes up. This would give me another opportunity to repeat the process.
Plus it also frees up my capital to buy other stocks if the same scenario happens to them.It is a good way of building a larger portfolio and reducing the risk. This works really well with dividend paying stocks. Suppose ABC pays $ .25 a year in dividends. Buying at $ 5.00 a share you would make 5% but reducing your cost to $ 2.85 increases your return to almost 9% on your investment. The hardest part of investing is buying a stock and having it go down. This is why you need to invest in sound companies. When stock markets go down they are usually the first to recover.
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