9 Best Strategies for Investing in the Stock Market

Investing is as much planning and strategising than it is buying and selling. For most people, the best approach is to own small amounts of diverse index funds, building positions through dollar cost averaging, then reinvesting dividends.

I want you to become a serious investor, professionally selecting individual stocks, building a solid portfolio based on proper analysis and a thought out plan.

For the investors who prefer to do-it-yourself, Benjamin Graham identified that there are certain categories that investors must fit into if they want to have ‘better than average returns’.

I think what Graham was trying to get at is, that buying stocks is easy. The challenging part is choosing the type of company that will help you reach your goal. Which is why you must decide on a strategy now, before diving head first into buying Apple stock.

Why Having an Investment Strategy is Important

An investment strategy is basically a set of rules that you live and die by. Your behaviour, procedures, and selection should all be influenced by the strategy you pick. Based on your risk tolerance, profit goals, and skill level, you will devise different tactics which will change as your life does.

Experienced investors will know that it takes time and practice to create and follow the perfect strategy for the individual. This is not something you want rush as it may be the difference between success and failure.

Investors that have no strategy are known as ‘Sheep’. They make decisions based on popular opinion, or a herd mentality. Sheep investing is what caused the Bitcoin bubble. These investors are blind folded, and have no idea what they’re getting into. This type of investing, as you can imagine, has mixed outcomes.

By investing with a strategy, you can manage your risk, estimate your future, and plan for rainy days. Most investors will fall between, low risk/low reward, and high risk/high reward, accepting their position, because they are sticking to their plan. Investors with no plan, don’t have the luxury of knowing where they are on the risk scale.

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9 Strategies for Stock Market Investing

#1. Retirement Account Investing

Passive and easy, retirement accounts are not just saving vehicles used to payout when you hit 65. They can be used to grow wealth and secure a bright future for you.

401(K)’s and IRA’s are very good accounts not only to save for retirement, but also to save on tax. The tax advantages of these accounts make the most used investing account on the market.

If you are not very financial savvy, or have no experience in the stock market, this is the first route you should take to get your money working for you. You can either open a passive account, where your money is managed by an advisor, or you can go it alone using a broker such as M1 Finance.

The earlier you get started with a retirement account the better, you can deposit as much or as little as you want. Your employer might even kick in a bit extra.

The only drawback to investing through these accounts is, you can only access your money when you reach retirement age… Or can you. Using a Roth IRA, you can withdraw your initial deposits from the account free of penalty, you just can’t touch your earnings. This makes the Roth IRA one of the most desirable retirement accounts out there.

Retirement Account Investing for Newbies

First things first, head over to M1 Finance and open your chosen retirement account, fund the account with your initial startup capital then set a monthly recurring amount to be transferred.

THAT’S IT… It is that simple to invest using a retirement account. You can keep track of your progress using the M1 Finance app and set yearly goals you want to achieve. These accounts are meant for the everyday worker!

Work Required
Potential Gains
Low Risk Gage

This investing strategy is very low risk, very passive, and if you can see big potential gains from even a small investment.

#2. Mutual Fund Investing

Another passive option in this list is mutual fund investing, which is also known as indexing.

A mutual fund or ETF follows a certain index, whether that be the S&P 500, FTSE 100, or one of the Barclay Bloomberg industry indexes. By following indexes investors have a pretty strong idea of the kinds of returns the fund is offering.

For example, in a good economy, the S&P 500 grows, hence the funds following the S&P 500 will return higher yields. But mutual funds try to beat the index, so even if it’s been a slow or declining economy, mutual funds can still produce returns on investments.

Related Article: Are Mutual Funds Better than ETF’s?

You will want to research which mutual fund you want to invest in. You can invest in multiple, however some have high investment requirements such as, minimum deposits, length of investment, and extensive costs for management.

Yes, costs! That is the one downside to mutual funds. A tolerable cost ratio is between 1% – 1.65%. Remember, every penny they takeaway eats into your profit. You might be able to fund some that over lower costs, but make sure the managers are reputable and trustworthy.

The higher the cost, the better the managers. Better managers also help reduce the funds risk by diversifying the assets. Many mutual funds hold a wide variety of stocks, bonds, money market instruments, and other assets.

Mutual Fund Investing for Newbies

If you have a spare $1,000, you can buy into a mutual fund. You do not buy shares, you are effectively contributing to assets in the fund. So if the fund buys Apple stock, you would own a portion of that Apple stock.

This can become complicated as any capital gain the mutual funds makes is passed onto investors, making mutual funds potentially tax expensive. Also the distributions from the fund are not dividends, they are treated as regular income on your tax return.

If you choose, you can reinvest your distributions back into the fund and increase your position. Or you can withdraw them as you go. If you choose to withdraw your distributions, your initial investment will never increase in value.

Work Required
Potential Gains

Again, much like the pension accounts, mutual funds are quite low risk because they are diverse. Depending on the investments made by the fund managers, your return can be high or low, which is why it is very important to research a fund before investing.

#3. Value Investing

Probably the most famous investing strategy out there, value investing is utilised by the best investors in the world, including Warren Buffett, Ben Graham, Michael Burry, and Seth Klarman.

This strategy revolves around the premiss that companies have an underlying value which is not represented by the share price.

Some call this the intrinsic value of the company. Using the intrinsic value you can estimate how fair the share price of the stock is compared to the actual value of the business. After all, as investors, you do not buy stocks, we buy shares in businesses.

Now… Not everyone is going to be a fantastic value investor. There is a steep learning curve to this strategy, and it can be time consuming to find the right companies to invest in.

Extensive research and fundamental analysis is required to become a successful value investor, so it might not be for everyone. But if you master the techniques, and have a good eye for value, you could be a high roller in the stock market.

Value Investing for Newbies

First things first, you need to understand how to perform fundamental analysis, this is the study of financial documents, business structures, and growth potential of a company. I recommend checking out these YouTube videos:

These videos cover pretty much every basic concept of fundamental analysis, and touch on a few more advanced techniques to find good companies.

Once you have a grasp on fundamental analysis, it is down to your judgement… Only you can decide if the company you are looking at is worth investing in. Will the company grow over time, what could hold this company back, how much are you willing to risk.

This can sound daunting, but as your investing career evolves, so will you skills and judgement. You will get better with time and practice.

Work Required
Potential Gains
High Risk Gage
High Risk Gage

The work required to become a successful value investor can be overwhelming, but I think we all know from the list of names at the top of this section… It can be worth it.

#4. Growth Investing

The concept of finding new companies with the potential to become the new Amazon.

Growth investing is definitely one of the more risky options for investors, as it can take years if not decades for the stock to payoff. By betting on the success of a company you are putting a lot of trust in the business managers and development teams.

Companies with huge growth potential currently are in the tech industry, big discoveries and new problems fixed everyday can lead to new opportunities. But with new growing industries, or a new product, there is always competition.

The company that gets to the discovery first is not always the one to walk away with all the profit. There are companies that specialise in developing better ways to manufacture, sell, and market products, most of which do this better than a start up with huge potential.

Not every company with a breakthrough business plan is going to become a huge success, most will do ok at best. You’ve got to find that one in a million that has something new to offer, and they can provide it for a massive market before someone else can.

Growth Investing for Newbies

This is all about personal experience and judgement. If everyone could pick the Amazon, there would be no point in having a stock market.

The best way of choosing growth stocks is to look at the current fundamentals of the company, ask yourself if the current managers can grow the company successfully, then trust your gut to make the right decision.

Will there be high demand for whatever this company is offering?

If the answer is no, then don’t invest… But if the answer is yes, you could have a winner on your hands.

Work Required
Potential Gains
High Risk Gage
High Risk Gage

Yes this form of investing is high risk, but if you have a good eye for potential value, you could become very risk. But please do some research, also you might be holding stock for 30 years waiting for it grow.

#5. Dividend Growth Investing

Also known as Income Investing, this strategy can be a very useful tool.

If you have ever invested in one of the Dividend Aristocrats, you have been a dividend growth investor. Basically, dividend growth investors look for companies that… One, offer a dividend… And two, grow that dividend each year.

Some of the worlds best know companies are dividend aristocrats:

  • 3M
  • AT&T
  • Coca-Cola Co
  • Johnson & Johnson
  • … And many more

Don’t get me wrong, you don’t have to choose from the aristocrats list. To get on the aristocrats list you need to grow your dividend consistently for over 25 years. There are plenty companies that grow dividends, but who have not been around a long time.

As a dividend growth investor you are looking to maximise your quarterly dividend payments so you can reinvest across your portfolio. This is how you take advantage of compound interest. You may also have the luxury of gaining share appreciation while you’re invested.

Now unfortunately, relying on dividend can be low yielding unless you are investing massive amounts of money. So I would stick to diversifying around dividend growth stocks with a couple of speculative stocks.

Dividend Growth Investing for Newbies

This is simple, invest in dividend paying companies that have either grown their dividend consistently, or plan to do so.

Dividend growth companies are usually blue chip, solid companies that are market leaders in their industry. Having excess cashflow is also a bonus.

Think about the market conditions, you don’t want to overpay for a stock that offers a poor dividend. Looking at AT&T back in 2019, this was potentially an overpriced stock holding at $39 per share, because of Covid-19 the share price has dipped to just under $30 per share. This is a much better price for the stock for the long term based on the value of the company.

To add on, you are not looking for the company that is offering the most dividend, you are looking at the company that is going to offer a growing dividend for the longest. This is what boosts your income, alongside the share price growing.

Work Required
Potential Gains

#6. Industry Specific Investing

We’ve been having a tech boom for the last 20 years or so now, so industry specific investors will prioritise most of their portfolios to tech companies.

These investors will look for openings in the marketplace, or specific problems that can be fixed by certain industries. An example might be in medical device manufacturers… When a new treatment or test is developed, these companies will gain contracts to build the devices used, hence generating more profit.

To be one of these investors you really have to have an in depth knowledge of your chosen industry. It’s no good choosing green energy as your industry if you can’t tell a solar panel from a wind turbine.

Either you choose an industry you have expertises in, or you choose something you have an interest in.

If you are interested by green energy, and you follow the major news stories, it might be worth wild diving in.

The solar panel companies went through a massive increase, then an even bigger decrease in the last decade because of the global warming scares. If you were on top of the news, and you knew which companies could meet expectations, you would make a great industry specific investor.

Industry Specific Investing for Newbies

You basically want to look for value in emerging markets or industries that are taking off.

I want you to first become a value investor, then pick an industry you think you will be able to track and make predictions on. This style of investing only works if you have the skills of a value investor, and the knowledge of an industry expert.

Work Required
Potential Gains
High Risk Gage

You might be saying… Chris, why is this low risk and high reward. Well…

You’ve put in the work becoming an expert in your chosen industry, you’ve learned about the companies and determined their intrinsic value, and you have anticipated a movement across the entire industry. How could you lose.

Yes you might lose a few, but the basic investing skill you’ve put in, alongside industry knowledge puts you ahead of the pack. Also remember, industry specific investors wait until major movements are on the horizon. So you could be waiting a while before you get the chance to buy.

#7. Market Leader Investing

As the name suggests, these investors target market leaders and don’t settle for anything less. These companies are those that command a lion sized market share and are stable enough to weather a downturn in the wider market.

Companies like Apple, Microsoft, and The Home Depot are a few examples of market leaders in their industry.

Investors that buy companies like this are looking for long term safety, and compensation in the way of either dividend, or mild share appreciation. They understand that they are not going to be excited by the returns, just happy that their money is doing something.

On the other hand, I have known market leader investors to search for emerging companies with potential to topple the king. In a small amount of cases, young companies can rise through the ranks and become market leaders in short amount of time… So be on the lookout.

Market Leader Investing for Newbies

This is by no means a complex method of investing, but the work required to understand what makes a market leader should not be overlooked.

Your understanding of different industries and mild review of company fundamentals will play a great role in your investing mission. You research the industry, find out who the big players are, then decide which company has the highest potential to succeed long term.

By picking the company at the top of the tree, you might not see the biggest returns, but they will be safe… Until someone else comes along!

Work Required
Potential Gains

Like I said, the returns are nothing to write home about, but over an extended period of time, maybe more than 20 years, these companies can return a healthy profit to go towards your retirement.

#8. Contrarian Investing

Contrarian investing is a strategy that a lot of people haven’t thought of. It is the purchasing or selling of stock that is contrast to popular opinion.

A contrarian investor looks at crowd behaviour and goes the opposite way, often exploiting mis-priced stocks. For example, the wider market might hold a lot of pessimism about a certain company, hence the mass sell of shares, driving the price down…

A contrarian will come along and notice this. The price is so low that it overstates the company’s risk, and understates its prospects for returning profit. Meaning, at the new lower price, the stock is much more desirable because all of the potential for recovery is there, without all the risk.

Contrarian investing is a lot like value investing. The investor looks for companies that are down on their luck, and are undervalued by the market, making the potential for return greater. However, the wider market does not sell off lightly, and often it is because of a problem with the company, making the risk an increasing factor.

But if you do your value investing research on companies you are looking to invest in through the contrarian method, the risk is still there but decreased.

Contrarian Investing for Newbies

“Be fearful when others are greedy, and greedy when others are fearful” – Warren Buffett

This quote sums up contrarian investing perfectly. People look at Tesla which currently sits at $2,000 per share thinking it is a great money making opportunity… and it was, 6 months ago when it was at $500 per share.

The sad fact is, people looking too investing in Tesla stock now, have missed the chance to make any real money. Greed is driving the Tesla price up, so you should be cautious with your investment.

On the other hand, during the 2008 crisis, Warren Buffett told his followers to buy American stocks just after the crash. People thought he was crazy, but he sore peoples fear and leaped into the market. 12 years on, and his holdings in Goldman is up 196%, and the overall S&P 500 is up 130%. He was greedy when others where fearful.

Mass selloffs cause dramatic decreases in share price. So if you can pick companies that will survive the crash and rebound, you could make a nice profit.

Work Required
Potential Gains
High Risk Gage

Just like with value investing, you need to put some time in researching companies to make sure they can withstand a price drop. But when you get it right, the returns can be enormous.

#9. Active & Passive Investing

If you want to put some money away for safe keeping but still try your hand trading some short term stocks, this is the strategy for you.

For short term trades we are not looking to break the bank, we don’t want to risk our entire portfolio on speculative bets. Generally a good place to start is by having 80/20 split, so 80% of your money in a low risk fund or stock portfolio, the 20% in a riskier but high yielding trade or investment.

The way you want to look at it is…

  1. Is this money I am willing to lose?
  2. Will the profit from my main portfolio cover the losses?
  3. Do I have enough time to actively trade stocks?

That last one is the most important. If you don’t have the time to research potential trades, look at charts, or read financials you are driving blindfolded. Even though they are speculative investments, you still need to do have some confidence in the trade.

Active & Passive Investing for Newbies

Like I mentioned, you want to have 80% of your portfolio safe, and the other 20% trying to make quick wins.

Research is key, not only do you want to choose good companies for both portfolios, you want to make sure you know when you’ve gone wrong. Have limits on the amounts you will lose, and never let your emotions run the show.

Think before invest!

Work Required
Potential Gains
High Risk Gage
High Risk Gage

The potential gains obviously increase with the more work you put in. But remember, you won’t win every trade, you just need to do better than 50%.

That’s a Wrap

That’s all I have for you, if you would like to learn more just check out my other articles on Investment Strategies, or head over to my free investing resources.

Chris Race

I am an accountant from the U.K. specialising in Management Accounting, Personal & Business Tax, Financial Analysis, and Wealth Management. My passion for learning is what lead me to creating this blog. Stock market investing has always been a interest of mine, and since I was 18 years old... This interest has become a source of income for me and my family.

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