Maybe you’re trying to get started investing for early retirement. Or, maybe you’re looking to earn extra income on the side. Either way, there is a stock investment strategy that can help you make your goal a reality.
But with so many beginner investment strategies at your disposal, it can feel overwhelming trying to figure out the best path forward. We’re here to help by breaking down all the common stock investing strategies for beginners:
- Buy and hold
- Swing trading
- Day trading
- Options trading
- Dollar cost averaging
- Index fund investing
Each has its place and the ideal strategy will depend on your financial goals, risk tolerance, and time commitment. Learn more below including how to get started investing as a beginner regardless of the strategy you choose.
No matter which strategy aligns with your goals, the VectorVest stock software can help you feel confident hitting the ground running with little to no experience.
It helps you uncover winning opportunities on autopilot while executing your trading strategy to perfection with a buy, sell, or hold recommendation for any given stock at any given time. See how it works with a free stock analysis today!
Basic Investment Terminology for Beginners
If you’re a complete newbie to investing it’s easy to get bogged down by all the different terms thrown around. So before we get into the different strategies you can explore, let’s start with the basics.
First, you should know that a stock represents ownership in a company. You’re essentially buying a small piece of the business – when the company does well, the stock price tends to rise, and you earn a profit.
That being said, the opposite is true as well. If a company struggles you’ll feel the effects as a shareholder. Don’t worry – you can protect yourself from this potential downside by choosing the right stocks and carefully managing your position.
More on that later. Here are some terms you need to familiarize yourself with in the meantime so you can navigate stock investing with clarity:
- Market Capitalization: The total value of a company’s shares. Calculated by multiplying the stock price by the number of outstanding shares.
- Dividend: A portion of a company’s earnings paid to shareholders, typically quarterly.
- Dividend Yield: The percentage of a stock’s price paid out as dividends annually.
- P/E Ratio (Price-to-Earnings Ratio): Measures stock value by dividing the stock price by earnings per share.
- Bull Market: A period where stock prices rise.
- Bear Market: A prolonged decline in stock prices, typically 20% or more.
- Risk Tolerance: The level of volatility an investor is comfortable with.
- Market Order: A trade executed immediately at the current price.
- Limit Order: A trade only executed at a specified price.
- Stop-Loss Order: Automatically sells a stock when it hits a specified price to prevent further loss.
Don’t stress too much about all the jargon used in the world of investing – you’ll pick it up as you go along. What matters most is you choose the right beginner investment strategy and master the basics of profitable investing. So, let’s get right into it!
What are the Best Stock Investing Strategies for Beginners?
From swing trading vs day trading for present-day income to buy and hold strategies to help you prepare for retirement, there are a variety of stock investing strategies for beginners to consider.
The truth is, you might eventually merge a few of these strategies to meet different goals – helping you earn income in the here and now while building a nest egg for retirement down the road. That being said, here are the best beginner investment strategies.
Buy and Hold
This is perhaps the most traditional form of investing, and it’s exactly what it sounds like. Investors choose stocks they have a bullish long-term outlook on and will hold them for extended periods of time – sometimes, years or decades.
The idea is that if you choose fundamentally sound stocks associated with established companies, your portfolio will slowly but surely appreciate over time.
This involves compounding growth, as much of your portfolio will be safe dividend stocks that return a portion of profits back to shareholders. You can reinvest these dividend payments, and over the years, earn impressive returns.
Buying and holding stocks is great for beginners because it’s a passive investment strategy that doesn’t require much management. You maintain your position regardless of market fluctuations.
However, this can be difficult to deal with. The market noise can be tough to tune out, and it’s easy to want to make changes on the fly when things aren’t going well. Many investors struggle to stomach unnecessary losses, which is why ultimately, we tend to recommend a more active strategy.
Swing Trading
Speaking of active investing strategies for beginners, what is swing trading? This approach involves buying and selling stocks to capitalize on short-term price movements, or swings.
The swing trading time frame can range from a few days to a few weeks depending on the volatility of a given stock and your outlook on it.
This method requires less fundamental analysis and more focus on technical analysis, since you don’t really care how well-positioned the company is for the future. You just want to profit from minor price movements!
Thus, you’ll use a variety of indicators for swing trading to identify potential trends and reversals, which are your opportunities for entry and exit. But is swing trading profitable, or more specifically, how much can you make swing trading?
When you use the best swing trading strategy paired with the best swing trade alerts service, it can be quite lucrative. It doesn’t take nearly as much time as you might think, either – at least, not when you have access to the best stock analysis app!
Still, every beginner investment strategy has its downsides and swing trading is no exception. It does require much more time, attention, and trial and error than a simpler strategy like buying and holding stocks.
It can be a bit more stressful since the margin for error is lower, but we believe when you look at the pros and cons of swing trading, the benefits outweigh the drawbacks. Learn more about swing trading in our blog.
Day Trading
When most people think about active investing for income, day trading is what comes to mind. This is as high stakes as it gets in the investing arena since as the name implies, you’re buying and selling stocks within the same day to earn a profit.
As such, you’ll focus on the most volatile stocks that present buying opportunities, using real-time data, technical indicators, and news to capture profits from short price movements.
The big draw of day trading is that you’re closing out positions before the market closes every day, which means you’re earning profits (hopefully) daily. This can be used to supplement another source of income, or day trading can be your full-time income source.
It works similarly to swing trading in that you’ll focus almost exclusively on insights gained from the best stock indicators to look for trends and reversals you can capitalize on.
Of course, the downside is that this pressure cooker environment can be stressful and overwhelming, especially for beginner trades but even seasoned investors.
Day trading is also time-intensive. You need to constantly monitor the market during trading hours, and it can feel like your mornings are always going to be dedicated to sitting in front of your screen. Transaction costs and taxes can cut into your profits as well.
This is why it’s so important to set yourself up for success with the best stock picker app. It can help you uncover the best opportunities on any given day so you make the most of every trade, locking in profits while mitigating losses.
Options Trading
Options trading is unique in that you’re not necessarily buying or selling individual stocks. Rather, you’re purchasing/writing contracts associated with stocks. So, what are stock options and how do they work?
A stock option gives the right (but not the obligation) to buy or sell a stock at a specific price before a set expiration date. There are two types of options: puts vs calls. Calls are a bet that a stock’s price will rise, whereas puts bet that it will fall.
What makes trading stock options for beginners so compelling is that you can make money no matter the conditions in the market. When stocks are underperforming, you can bet on that continued trajectory and make money. Or, if your research indicates a reversal is on the way, you can act accordingly.
Other benefits of trading stock options include the potential to make serious cash since you can leverage smaller capital to control larger amounts of stock. If you’re getting started with a smaller account this is a great option.
However, options trading can be a bit complex. It’s not always going to be profitable, either. Time decay, where the value of the option decreases as the expiration date approaches, can work against you.
You need to take your time to learn options trading and figure out which sub-strategy makes sense for you – be it selling calls or shorting a stock with options, trading covered call ETFs, cash-secured puts, or anything in between.
We have more tips on how to make money with options in our blog. We have a great investment app for beginner options traders as well, which we’ll introduce later on.
Dollar Cost Averaging
This beginner investment strategy falls under the umbrella of buy and hold, but is more structured to generate substantial long-term wealth. You simply invest a fixed amount of money into a stock or fund on a regular schedule (monthly or weekly), regardless of the stock price.
The idea is that if you just weather the storm and tune out the noise associated with market fluctuations, your portfolio will still grow in the long run. It’s a low-stress way to approach building a stock portfolio for retirement or some other long-term goal.
The only problem? You’re still subjecting yourself to unnecessary losses. Just like we touched on with buy and hold strategy, it can be difficult to sit around patiently while your portfolio loses value.
This is why ultimately, we feel that market timing strategies outperform more passive investment methods like this one. We talk more about this in our comparison of dollar cost averaging vs timing the market.
Our stance is that there’s no reason to take losses lying down when you could simply convert to cash, wait for more favorable conditions, and reenter the market. This salvages profits and leads to higher returns in the long run, albeit with a little more effort on your part.
Index Fund Investing
There are ways to invest in the stock market without touching the individual stocks themselves. We already covered options trading as one method, but index fund investing is an even more straightforward approach.
This involves buying shares of a fund that mirrors the performance of a market index like the S&P 500. The benefits are clear – no need to stress about how to pick a stock, or when to buy stocks for beginners, when to sell a stock for profit, or when to cut loss on a stock.
The fund does all this on your behalf! You just sit back and rake in the profits while they handle the management side of things. There are tons of funds you can choose from based on your income goals and risk tolerance.
But, these benefits come with a price. Fund fees can cut into your profits. More importantly, though, any given fund is going to have underperformers weighing it down. This means you won’t earn the same high returns you could by investing in stocks yourself.
Given how easy VectorVest makes it to learn how to find stocks to swing trade, how to find stocks to day trade, or even how to find undervalued stocks to invest in for retirement, why not put in a bit of effort to make more money?
We feel this is the smarter approach for those who have some spare time and want more control over portfolio performance. Ultimately, though, only you can determine which of these beginner investment strategies is right for you.
Which Beginner Investment Strategy is Right For You?
Hopefully one of these investing strategies for beginners is calling your name – but if you’re still on the fence, start by determining whether you want to follow an active or passive method.
Buy and hold, dollar cost averaging and index funding are all great hands-off methods if you don’t mind sacrificing a bit of performance to save time and stress. They’re great for building long-term wealth alongside a full-time job, but you’ll never get rich using these methods.
In contrast, day trading, swing trading, and options trading are just a few of the more active approaches you have at your disposal. There are tons of others, like scalping, trend trading, and more.
Sure, you need to take a bit more time to learn the ins and outs of these investment methods – and they can be a little more stressful – but you get out what you put in. Active trading gives you the chance to maximize returns. This can replace a full-time source of income in some cases.
Always consider your risk tolerance along with your investment goals and time commitment. There’s nothing wrong with trying a few different strategies and seeing which resonates with you more!
Tips on Getting Started Investing for Beginners
Before we wrap things up on our beginner investment strategy guide we want to offer a few more tips to help you hit the ground running:
- Set Clear Financial Goals: Are you saving for retirement, a house, or shorter-term goals? Knowing your time horizon and risk tolerance will guide the strategies you choose. It will also influence the profit targets you aim for on every trade.
- Go All in on Education: Don’t skip the learning curve, or you’ll pay for it in the long run. Whichever strategy you choose, spend time reading, watching, and better yet investing in professional education and training.
- Choose a Brokerage: Look for low fees, user-friendly platforms, and any specific features you want (like research tools or access to options).
- Practice With Paper Trading: Many brokerages offer paper trading accounts where you can put your strategy to the test with fake money in real situations, helping you make mistakes for free rather than with actual capital.
- Diversify Your Portfolio: Spread your investments across different types of assets (stocks, bonds, ETFs) and industries to reduce risk.
- Start Small With Position Sizes: When you’re ready to start investing real money, dip your toes in the water with smaller position sizes before ramping up.
- Stay Emotionally Detached: One of the most common mistakes new investors make is getting emotional about trades – panicking during market dips or getting overly excited during rallies. Never make decisions from a place of emotion.
- Use Take Profit and Stop Loss Orders: A take profit order automatically sells when the stock hits a target price, while a stop loss order limits losses if the stock drops below a certain level. These remove you from the process of closing out positions so you don’t let emotion get in the way.
You can learn more on free stock analysis websites, or you can browse our blog here at VectorVest. Whether you’re interested in learning how to analyze stocks or you want to find the best day of the week to buy stocks, we’ve got you covered.
Better yet, our stock advisory can do all the heavy lifting of helping you find winning opportunities on autopilot while finding the perfect time to buy the dip and sell for profit.
Set Yourself Up for Success in Any Beginner Investment Strategies With VectorVest
VectorVest is the best iPhone stock app and the best Android stock app because it simplifies what would otherwise be a complex task of uncovering good stocks and figuring out how to trade them.
The system has outperformed the S&P 500 index by 10x over the past 20 years and counting. The best part? It does this while saving you time and stress, since you’re given all the insights you need in 3 simple ratings: relative value (RV), relative safety (RS), and relative timing (RT).
Each sits on a scale of 0.00-2.00 with 1.00 being the average, making interpretation quick and easy. It gets even better, though, since all the stocks tracked have a buy, sell, or hold recommendation.
Whether you’re looking for the best blue chip dividend stocks, the best stocks for covered calls 2024, the best stocks for Roth IRA, the best stocks to buy for beginners, falling stocks to buy, aggressive stocks to buy now, or anything in between, VectorVest can streamline things for you.
You have access to a wide variety of pre-curated stock picks, too, so you never have to look far for your next trade. But with a free stock analysis just a click away, why not see for yourself how much easier and more profitable investing can be? Arm yourself with the best tools for success today.
Wrapping Up Our Guide to the Best Investing Strategies for Beginners
That concludes our detailed guide on the best beginner investment strategies. There are so many paths you can take to start investing, from day trading and swing trading to options trading, dollar cost averaging, index fund investing, and more.
The truth is, there are just a few of the many investing strategies for beginners – there are plenty of others, but we believe these to be the best for those just starting out.
The key is to match the strategy to your goals, risk tolerance, and level of involvement. Whether you’re taking a passive approach with dollar cost averaging or getting hands-on with options trading, we wish you the best of luck in your next steps!
But for active investment strategies, you need to be more meticulous in your stock picking and execution. Why guess when the clear, actionable insights you need to succeed are right here waiting for you? Let VectorVest show you the smartest way to invest today.
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