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4 Stock Market Investing Strategies To Learn Before Trading

When it comes to personal finance, sometimes it’s better to learn as you go. But even if you’re new to the world of investing, it’s still good to have an idea of how, exactly, you plan to invest your money. 

Are you looking for quick turnaround investments? Or something more long-term? 

What’s your tolerance for risk? How do you spot “good” investments? 

Every investor needs an investment strategy. You can change or combine strategies as you go, but you still need some kind of framework in place to help you make the most of your money. 

Your investment strategy influences what you buy, where you put your money, how much you invest, and how often you invest. It’s a big deal!

At a minimum, new investors should learn four of the most popular stock marketing investing strategies: 

  1. Value investing
  2. Growth investing
  3. Momentum investing
  4. Dollar-cost averaging

To choose the best stock market investing strategies for your goals, consider:

  • Your financial situation
  • Your goals
  • How you want to invest
  • Your risk tolerance

Not sure which stock market strategies are right for you? Check out this guide to learn about the most common stock market investing strategies, as well as how to pick the right strategy for your situation.

4 Stock Market Investing Strategies For Beginners

Every investing strategy has different characteristics, but remember: it’s your money, and you have the freedom to make it your own. Try one approach out and see how it goes. You can always change your plans and try a different approach later.

There are so many investment strategies to choose from that it’s dizzying. Instead of overwhelming you with options, I’ve narrowed it down to the four most common strategies you’ll come upon as a newbie investor. 

1. Value Investing

Value investing is all about shopping around for cheap stocks and then reselling them when they’re worth more at a later date. If that sounds familiar, it’s the “buy low, sell high” philosophy touted by famous money-man Warren Buffett. 

With value investing, you’re doing a little detective work to spot undervalued stocks. This means that you’re buying stocks that should be worth more than they are, but the market hasn’t caught on yet.

Sometimes this means finding investments that are diamonds in the rough, and other times, it means finding big-name brands that are temporarily down on their luck. For example, if you notice that Coca-Cola’s share price dropped after it released its infamously gross coffee drink (I sampled it and it truly is gross), that could be a good time to buy. 

Instead of going after the cheapest stocks possible, you’re going for stocks that are a good value for the money. They happen to be cheap right now, but historically, you expect them to do well. 

With value investing, it’s about finding long-term winners and not investing in short-term fads. You also need to be educated on the stocks you’re buying, because you could always accidentally buy a dud. 

However, value investing is a popular option for investors because it’s what most of us were taught about the stock market. You’re likely already familiar with it, so value investing can be a good starting point. 

2. Growth Investing

The second stock market investment strategy is growth investing. With growth investing, you aren’t necessarily concerned with the value of the stock. Instead, you’re looking at the growth potential of a stock. 

Growth investors usually look for young, growth-stage companies that are growing at a rapid rate—it’s a very popular investment strategy in fast-growing industries like tech. 

Growth investing tends to be more aggressive and speculative than value investing, so it’s better for experienced investors or investors who need to grow their money more quickly. 

To spot growth investment opportunities: 

  • Look for disruptors: Who is shaking things up? You’re looking for Teslas, Ubers, Twitters, and other mold-breakers as a growth investor. The more unique a company, the better.
  • Understand the industry’s potential: Is the company you’re interested in operating in a thriving industry? Is the industry growing, or is it shrinking? For example, you might not want to invest in a newspaper company (even if it’s growing a lot) because print is a dying industry.
  • Know the business’s leadership: When a company is in its growth stages, you need to know it’s in good hands. Look for brands with experienced, knowledgeable owners. Folks like Elon Musk are fun and grab headlines, but you want to know the company is in the hands of someone with a stable track record. 

Because they’re more speculative, growth investments can be riskier. I don’t want that to scare you away from this strategy, but you need to be aware of some of the downsides. There’s always the risk of growth investments increasing in value too quickly, which puts the investment at risk of a bubble. Growth investments also tend to take a while to distribute dividends to investors. 

There’s nothing wrong with taking a growth-minded approach, but instead of putting all of your money into speculative investments, make sure your portfolio is diversified and well-balanced. 

3. Momentum Investing

The third type of stock market investing strategies is momentum investing. I like to refer to this as the “bad boy” of investment strategies: it’s alluring, dangerous, and just might run away with all of your money. 

Momentum investing happens when you buy stocks that are trending upwards in value. You’re looking at the momentum of a stock, whether it’s going up or down. Momentum investors will typically sell stocks when they notice them dipping in value, and buy them when they increase in value (with the hopes of more increases in the future). 

Good momentum investors treat the stock market as a hobby of sorts, looking through sheets of data to find stock price patterns. If they time it just right, momentum investors can make decent money by shorting stocks, but it’s risky

The thing is, momentum investing is dangerously close to day trading. Sometimes momentum investors act too rashly, and they don’t have time on their side. It’s no wonder why momentum investing strategies tend not to perform as well in the long term. 

But even so, momentum investing is still a popular option for investors after they learn the ins and outs of the stock market. Just make sure you know what you’re doing or you could lose your shirt!

4. Dollar-Cost Averaging

Dollar-cost averaging (DCA) is the final stock market investing strategy. And here’s the good news: you can combine DCA with any of the other investment strategies on this list. 

Not everyone can put $10,000 into an investment at once, so dollar-cost averaging makes investing accessible to more people. With DCA, you consistently invest in the stock market over time. I take this approach with my own finances, contributing $300 a month to various investments. It’s on auto-draft, so I hardly notice the money coming out of my account every month. 

With dollar-cost averaging, you spread out your stock purchases over time instead of buying them all in one lump sum. It takes a lot of the pressure off of you for trying to “time” the market. Since you’re buying consistently over time, you tend to pay a lower price than the average, giving you better prices over time. 

Instead of obsessing over the news or freaking out any time there’s a rumor about a recession, DCA helps you stay the course, steadily and consistently. If you want to take a long-term (10+ years) approach to your investments, DCA is a great choice.

How To Know Which Stock Market Investing Strategy Is Right For You

So, you’ve learned all about the different stock market investing strategies—but which one should you actually use? Nobody can tell you for certain, but you should weigh these four factors to help you decide. 

1. Your current financial situation

I know it feels like you’re falling behind if everyone around you is investing and you haven’t started yet. But is right now the time to start investing? Will investing jeopardize your financial stability? 

You don’t need a lot of money to start investing, but sometimes that extra $100 a month can be a real hardship if you invest too early. 

Make sure you pay off your debts and that you have an emergency fund before you start investing. That will give you the stable foundation you need to invest with ease. Without these things in place, it’s tough to stay consistent with investing, so make sure your financial situation lends itself to investing first. 

2. Your financial goals

Why do you want to invest? Are you:

  • Saving for retirement? 
  • Building a dream home? 
  • Saving for your kids’ college? 
  • Trying to build wealth so you leave a legacy?

Most investments are long-term (10+ years), but it’s possible to save for goals that are 5 years down the road or sooner. The thing is, knowing your goals and your target dates will have a direct impact on which investment strategy you pick. 

For example, if you need faster returns, you might choose momentum investing. For longer-term growth, you might go for value investments with dollar-cost averaging. 

It all depends on why you’re investing, so clarify what you plan to do with this money down the road. 

3. How you plan to invest

How are you planning to invest your money? It’s a good idea to diversify with stocks, bonds, ETFs, real estate, and maybe even a little cryptocurrency. 

Beyond that, though, how do you envision managing your money? 

Are you going to do it yourself? If so, dollar-cost averaging can be a good idea. DIY is also a better bet if you want to do momentum investing because the fees that come with brokers and money managers can wreck your profits. 

How you plan to invest will also affect how much money you need to put in. If you really want to be a growth investor, but you’re starting out with a mutual fund that requires a $10,000 minimum, that’s a pretty big barrier to entry. Decide how you want to invest your money, know the requirements, and make sure your investing strategy aligns with that.

4. Your risk tolerance

Finally, how comfortable are you with risk? 

Aggressive investments come with the potential for a bigger payoff, but they tend to be riskier—which means you could lose a lot of money if you invest in the wrong thing. On the flip side, more conservative investments don’t grow as much, but they don’t carry as much risk of losing your money. 

Everyone is different. I tend to be a more conservative investor, while my husband is all-in on riskier investments like cryptocurrency

I can’t tell you what the “right” risk tolerance is, but a good rule of thumb is to stay balanced. You don’t want to be too conservative or you’ll miss out on a lot of growth. But you don’t want to be too aggressive, either, because you could lose it all. 
As a beginner investor, err on the side of being more conservative. You can always rebalance your investments down the line to be more aggressive once you have more experience.

Choose The Stock Market Investing Strategies That Work For You

There’s no one “correct” way to invest your money. Personal finance is personal, and what matters is that you identify a strategy that works for you. Depending on your current situation, risk tolerance, and mindset, you’ll need a different mix of stock market investing strategies than anyone else. 

Educate yourself about these four common investing strategies before you invest a single penny. It’s also a good idea to educate yourself on how to build long-term wealth with something like the stock market. Join Minority Mindset’s Market Insiders program for on-demand, no-BS education on real estate, stocks, crypto, and more. 

By Market Insiders