Profit from the Stock Market

Investing in the stock market successfully requires some level of skill and patience. However, you do not need to have all the technical skills in order for you to succeed. With a few fundamentals, you can always profit from the stock market, whether it is going up or down. Thus, for you to thrive in the complex world of stock market investing, you need to have a plan that guarantees actual growth from a substantial base of investments and decreases your exposure to risk. To do this you must:-

Understand your level of Risk Tolerance

The stock market is a very attractive place, especially with all the alluring promises of big returns on your money. But, before you can jump in and invest, you have to know and understand a couple of things about yourself. These are:-

• Are you after low-risk, low-return investments?
• Do you want low-risk, high-return investments?
• Are you after high-risk, high-return investments?
• Do you want to gamble away all your money, then hope and pray for a quick return?
• When do you need your money back?

By asking yourself these simple questions, you will get to know what you are comfortable with, get control of your emotions and create goals about what you expect from your investments. In turn, you will be in a position to make sound and intelligent investment decisions.

Look for the Appropriate Broker

This should be someone who clearly understands your needs from the start and respects them. He should help you build a portfolio tailored towards meeting your goals and expectations that you set-up in step one. Ask a lot of questions before you can settle for a certain stock broker.

Create Your Portfolio

Deciding on what stocks to invest in is a very key step that you should do carefully. Stick to your goals and expectations and only include in your portfolio stocks that you are comfortable with. Furthermore, the returns from these stocks should meet your target. A successful portfolio, which guarantees profits in any market, should include three types of stocks namely:-

• Dividend Stocks
• International Stocks
• Hyper-Growth Stocks

1. Dividend Stocks

Dividend is an amount of money you earn annually for owning stocks in a certain company, and it is paid out per shares held. Dividend stocks are the stocks that you get paid for owning them by the respective company you have invested in. They should comprise about 50% of your portfolio, since they provide stability and balance through all market conditions as they earn you passive income in form of annual dividends. When selecting what kind of dividend stocks to invest in, you should consider;

• Stocks that have high and sustainable yields. The acceptable yields should be between 3% - 9%. Anything above that should be a cause for alarm.
• Pay- out Ratio- This refers to the percentage of its net profit a company pays out as dividends. A company that has a pay-out ratio of between 50%- 75% is a good company to invest in since you will earn a healthy dividend on your stocks, and the company will have enough money left over to carry on its operations.
• Invest in sectors and stocks that have great future growth prospects. This means that you do not rely too much on the past performance of a stock or sector because that does not necessarily guarantee how the stock or sector will perform in the future.

· Have a sell strategy at hand and stick to it. These are guidelines you set-up that act as a cushion about how much loss you can take-up before you sell a stock. The recommended mark is 15% but the decision on when to sell is always yours to make.

2. International Stocks

These stocks generate returns for you worldwide and should be 40% of your portfolio. They include investments in areas such as energy and commodities sectors. Examples are gas, oil, gold, silver, precious metals… to mention but a few.

3. Hyper- Growth Stocks

They are high risk, high return investments and should make up 10% of your portfolio. They are very risky to invest in, but their returns are massive and explosive. Some of these investments include; investments in direct emerging markets or newly traded public shares.

These simple fundamentals when combined, give you a 100% strategy which when properly followed, guarantees you profits no matter the market conditions.

Copyright Denis Mathenge 2012