How to Earn in the Stock Market

The only reason to purchase stock market-based investments is to earn money. For long-term goals, such as retirement or a down payment on that expensive new cottage on the lake, the stock market has the volatility to earn much larger returns than bonds or your savings account. Investors who want to earn money in the stock market know that there are some time-tested strategies you can follow that can increase your chances of success.

Step 1

Start investing with your goals in mind. The Securities and Exchange Commission recommends creating a diversified portfolio of investments based on your goals and risk tolerance. You’re more likely to make good decisions when the market suddenly shifts if you know when you’ll need the money and how close you are to your need for the funds.

Step 2

Create a watch list of potential investment opportunities. Write down companies and sectors of the market that you understand. Both investment gurus Peter Lynch and Warren Buffett invest only in companies that they completely understand. By sticking with investments that you know, you’re more likely to understand the impact of changes in the economy, management overhauls and product news.

Step 3

Use the right investments for your situation. If you have the time and energy to research, purchase and track individual stocks, you could find the next Microsoft or Apple and earn large sums of money. Conversely, if you own stocks and don’t have the time to monitor your portfolio, you could also lose large sums of money because of your lack of diversification. If you don’t have time, explore mutual funds, which offer stock market investments with a professional manager and track record that you can monitor in far less time.

Step 4

Research your investments carefully. For individual stocks, use stock screening tools at sites like Yahoo! Finance and MSN Money to scour the stocks on your watch list for those that deserve your investment dollars. You can sort stocks by, among others, earnings, revenues, recent or long term gains, dividends, and stock type. For mutual funds, use sites like Morningstar and Wall Street Journal Online Mutual Fund Screener to pick funds based on data such as fund type, manager experience, expenses and fund type.

Step 5

Create a sell strategy. Earning money in the stock market is fun, but losing all of your hard-earned gains during a market downturn can ruin everything. To keep your earnings, monitor your goals. As you get within five years of your goal, begin lightening the number of stocks or funds in your portfolio to bulk up on safer investments. Set stop orders on stocks that automatically sell your investment if the stock retreats. Raise your stop order as the stock earns profits to lock in your gains.

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