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How to Make Money in Stocks, According to Experts

For the average investor, there are lots of ways to make (and lose) money in stocks. TheStreet asked experts some of their top tips and strategies for making a profit in the market.
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Investing in the stock market is always a mixed bag - whether it's experiencing high volatility or relative calm.

Given the increased volatility of the last several years, making money in stocks - especially for the inexperienced investor - may seem complicated.

But according to Mike Loewengart, vice president of investment strategy at E*TRADE (ETFC) - Get E*TRADE Financial Corporation Report , market volatility should not scare first-time investors off from dipping their toe in the market.

"First off, recognize that volatility is a normal part of investing. Markets go up, markets go down - it's just the way it is," Loewengart told TheStreet. "We have gone through periods in the recent past of low volatility, and that's really not normal when you think about the longer term historical context of the equity market - them moving around is just a fact of life."

Still, how does the average investor start making money in the stock market, aside from navigating volatility?

Of course, TheStreet's founder Jim Cramer has a rule or two about investing. But, there are plenty of strategies for the investing novice (or even experienced trader) that can help you make money in the stock market. Whether you're a first-time investor or a market veteran, TheStreet has compiled expert's top tips and strategies for making a profit off the market.

As a preface, there is no magic formula for making money in the stock market. But, according to experts, there are definitely ways to make it a lot easier.

How Much Money Do You Need to Invest in Stocks?

Investing can seem daunting when so many stocks are over $100 per share or mutual funds have high minimums. But, according to Loewengart, you don't need loads of cash to start seeing returns in the market. In fact, he says that low-net-asset-value funds may be the best choice for the fiscally-challenged investor.

"When we talk about ETFs and mutual funds, often times their prices can be lower than any individual equity you may be interested in," Loewengart said. "Often times you can find an ETF, which has maybe a $50 net asset value, that could be a good choice. But if you can do it on a fractional basis, through, say, a mutual fund, that's also a great opportunity and vehicle to save whatever amount you have. And it adds up."

Loewengart suggests finding ETFs with minimums as little as $100.

But even apart from low-minimum ETFs or mutual funds, there are more options now than ever for beginners to invest even pennies in the market. Apps like Acorns or Robinhood provide prospective investors with easy access to fractional investing that even includes opportunities to get into cryptocurrency.

Although it may be challenging for beginners to invest hefty sums of cash in the market, David Russell, vice president of content strategy at TradeStation, advises beginners to invest and forget.

"Investors should realize that money they invest, they should pretty much forget about it for a decade. Think that way," Russell said. "Even if you make money on it, you don't want to be removing money from investments for short term expenses. So everyone has to look at their own financial situation to determine how much money they need, but it is important to realize that this is money that is at risk and they very well need to accept the possibility that they will lose it."

The possibility of losing money would seem obvious in the investing game - but according to JJ Kinahan, chief market strategist at TD Ameritrade (AMTD) - Get AMTD IDEA Group American Depositary Shares each representing one Class A Report , that's not always the case for beginner investors.

"It's common for beginning investors to only consider how much money they can potentially make on a particular stock or fund, but forget there's the potential to lose money as well," Kinahan told TheStreet in a note. "There are no guarantees in the market, so before buying anything, ask yourself, how much can I afford to lose? And then, how much do I hope to make? Investors need a plan getting out both on the downside as well as the upside."

Even though there is always the risk of losing money in the market (and, realistically, every investor will lose on a position at one point), experts suggest staying strong and disciplined in good investments and not letting momentary blips discourage you.

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In fact, Loewengart says that staying the course can really add up in gains.

"When I think about when I was starting out and you're making these small purchases, and when you're in the thick of it, you think to yourself, 'ah, I could really use this money for other stuff.' But then, before you know it, you really start to see meaningful amounts," Loewengart said. "And when I say before you know it, I mean about a year. Let's say you're doing a year of small purchases - in the end, if you're doing $50 or $100 a month and you're doing it on a disciplined basis like that, coupled with the appreciation of the market, that turns into a much more significant sum."

What are some strategies you can employ that will help you realize these gains?

Tips and Strategies for Making Money in Stocks

It's true, putting money into stocks always engenders some risk. But there are several strategies you can employ as a beginner or average investor that will increase your odds and help you work steadily toward wealth accumulation.

Here's what experts are saying are the main things you should keep in mind when aiming to make money in the stock market:

1. Identify How Much Time You Have

Getting into the stock market automatically implies (or at least should) a time investment.

When first getting started, Russell claims beginner investors need to be honest with themselves about how much time they can dedicate to research and maintenance of their portfolio.

"They need to take a look at their life and kind of decide, 'do I have time at two o'clock in afternoon?' That sort of thing. Because sometimes what happens is, people get started and they might buy a few things or engage in some positions but they don't really think about over time doing it on a day in, day out way," Russell said. "The good news is that it's possible to make money in the market without a huge amount of time, but it's very difficult to make money in the market without a plan and without a consistent approach."

Kinahan advises laying out your time horizon in order to be more realistic with your investment goals. For example, are you investing short term for a week or a month, or long term for over a year? By keeping your time frame in mind, Kinahan claims, you can better formulate a plan with realistic expectations.

2. Start Small

Experts agree - you don't need a fortune to get started investing.

"When I think about beginner investors who are starting their wealth-accumulation journey, I always think of the Chinese proverb - 'the journey of a thousand miles starts with a single step,'" Loewengart said. "That's really what resonates with me, that's what it's all about. In the beginning, it's really hard to recognize the impact a lot of small purchases can have, but if you're disciplined about saving and you're having an accumulation plan, it really starts to add up pretty quickly."

Loewengart advises you do your research when picking investments, but that it is crucial to stay consistent and allow profits to build.

He suggests starting with a basket of 10 stocks to increase diversification and avoid focusing too much on one stock - especially because he says you're competing with other investors who spend much more time researching stocks than you might be able to.

3. Focus on the Big Picture (and Get to Know Your Sectors and Industries)

With dozens of big-name stocks like Apple (AAPL) - Get Apple Inc. Report , Amazon (AMZN) - Get Inc. Report and Alphabet (GOOG) - Get Alphabet Inc. Report dominating headlines, it may be easy to view investing in stocks as a big-name game. But according to experts, looking at the big picture of the market is a better strategy to realize long-term gains.

Russell advocates for a sector-heavy strategy, urging beginner investors to get to know specific sectors and industries more so than particular companies.

"Clients and new investors should think about the market by sectors, by industries. Many investors make the mistake of over-focusing on individual companies - they follow a handful of very well-known companies and they might miss things in the broader market," Russell says. "And investors should be looking at which sectors are doing well this year, which sectors are doing badly, which sectors are doing well in the last month, last quarter - and have a sense of where the strength is. And then, when they know that, they should consider focusing their investments on those areas where the strength is. That increases their odds of doing well."

4. Learn the Basics of Technical Analysis

One thing experts seem to agree on is the importance of getting a base-level knowledge of technical analysis. And while the beginner investor likely won't need to be an expert on technical analysis, they do need to know the basics.

"Not everyone is born a technical analyst, but it is important to have an idea of basic support and resistance numbers on a security," Kinahan says. "Take the time to understand where people are more likely to buy and sell a security, this will help you decide on a price of entry - and exit - for yourself."

In fact, apart from making better trades, having an intro-level knowledge of technical analysis concepts can help you better understand the conversations happening around the market.

"Technical analysis has become more popular," Russell said. "You can spend hours, days, months learning it, [but] there are basic principles for things like trends, resistance, reversals, those kinds of big picture things ... these ideas are referenced a lot in the media. Can you follow people talking about the market? A good way to be prepared for that kind of experience is to learn some of the basics of it."

While technical analysis may sound complex, Loewengart says it is key to understanding basic things like price movements and momentum. But he says you should also invest time to understand its counterpart, fundamental analysis.

"You really want to complement that with fundamental analysis - which is where you're making an assessment of the economy, the industry conditions and the company-specific factors that may be impacting the stock you're interested in," he says. "Financial conditions, company management, earnings, their prospects for future earnings, their capital structure - how much debt do they have? How much have they borrowed to fund their operations? These are all the things you want to consider. Does the stock pay a dividend (which is where you receive a portion of the earnings every year)?"

In fact, Loewengart says that having a basic understanding of both technical and fundamental analysis can really help when zeroing in on specific equities.

5. Be Diversified

Diversification is often recommended for any kind of investor - but given the recent market volatility, experts recommend maintaining a diversified portfolio to combat possible blips in the market.

To Loewengart, using diversification to combat volatility is a tried and true strategy.

"[Diversification] is very important because you need to recognize that things can go wrong and there's a lot of risks that go along with being an equity investor. And those include industry, economic risks, the market risks, systematic risks - just getting into the stock game, you are subject to these," he says. "So count on these risks - [but] you can combat that with diversification. And if you do it right, you can end up with potentially better returns than what you could end up with just buying a single stock."

Because having specific stocks dominate your portfolio may make it more prone to feeling the dips of the market, Loewengart and Russell say that diversifying your portfolio through vehicles like ETFs or mutual funds are a better way to ensure you aren't fully exposed - especially for new investors.

6. Take the Long-Term Point of View

Apart from preparing for volatility, experts claim it's crucial to take a long-term point of view when thinking about the market and planning your portfolio.

In fact, Loewengart claims looking at your portfolio with a short-term lens isn't all that useful.

"The high-level takeaway would be focus on the long-term. Over a long period of time, even a period of five years ... individual days and even the shorter-term movements of the market become less and less consequential," Loewengart says. "Don't think of your equity investments as always being tied to a calendar - that can be somewhat arbitrary."

This also plays into volatility - as Russell says that, if you are thinking long-term, volatile blips won't have as much of a chilling effect. Experts advise you assess how much time you have in the market and to look to long-term gains over the short-term.

7. Be Disciplined

For any investor, new or old, being disciplined with your trading is key to sustaining gains and accumulating wealth in the stock market. But with exciting stocks riling investors up, it can be tempting to veer off-course.

For strategists like Loewengart, keeping your purchases consistent can really add up - even with limited funds.

"Let's say you're doing a year of small purchases - in the end, if you're doing $50 or $100 a month and you're doing it on a disciplined basis like that, coupled with the appreciation of the market, that turns into a much more significant sum," he said.

Exercising discipline when steadily accumulating shares through a vehicle like a 401(k) coupled with a long-time horizon is a strategy Loewengart says has "historically shown to be a great proven recipe for accumulating wealth."

8. Keep a Liquid Diet

For beginner investors, keeping "liquid" is generally a better way to go, according to Kinahan.

"Particularly when starting out, investors should stick to trading very liquid products. You want to trade where everyone else is trading so that you have tight bid/ask spreads and increase your ability to make money," he said.

9. Don't Be Too Concerned With Volatility

Volatility - the word that can send shivers down the most weathered Wall Street veteran. But, according to experts, it's nothing to be too afraid of. In fact, Russell even calls volatility an "opportunity."

"Over the long term, volatility just turns into opportunity. It's kind of like weather - you just need to recognize there are a lot of reasons for volatility, ... but for ordinary people starting, it's kind of like the weather - you can be a meteorologist and study why it's raining today, or you can just recognize that your picnic got rained out," Russell explained. "[Investors] should recognize that [volatility] happens and not be scared off by it, and at the same time respect it and not to be reckless. ...You don't just decide that you're never going to go on vacation again because it rains one day, but at the same time you don't go out in a lightning storm - you have to respect it and keep it in its place."

Weather analogies aside, Kinahan suggests knowing your limits when it comes to volatility.

"Just because others are willing to risk more or less than you, does not mean you need to follow their lead. Everyone's risk tolerance is different, so it's critical that investors understand how much volatility they can tolerate and still sleep at night," Kinahan said.

10. Know What You're Buying and Trade Small

For the average investor just getting into trading, Kinahan advises to wade in slow but sure, and make sure you know exactly what you're buying.

"Keep your trades small, have some early successes and then repeat the process. It is easy to increase your trading size after initial success," he said.

Additionally, regardless of your experience level, get to know your buys. Research how the company makes money, or if you are investing in a fund, make sure you do your homework on the securities it contains.

Common Investor Mistakes

Still, even the most experienced trader can make mistakes - but beginners are even more prone to common missteps that might negatively affect their gains. So, what are the most common mistakes, and how can you avoid them?

1. Trying to "Time" the Market

One of the biggest market faux-pas (even for veteran investors) is trying to "time" the market - or, get in or out at the right moment.

"Don't delude yourself thinking that you are going to get the timing right, because you have to get it right on both ends - selling and buying. And recognize that if you do venture to do that, you're likely going to experience the opportunity cost of missed appreciation," Loewengart said.

Instead, experts suggest picking stocks or funds that you've researched and incrementally build shares over time. After all, no one is a market psychic.

2. Following Herd Mentality

With Twitter (TWTR) - Get Twitter Inc. Report and a non-stop news cycle, headlines seem to move the stock market more so than in the past (as is evidenced with Elon Musk's long relationship with tweeting and shareholder controversies). But following the herd mentality of the market can be a dangerous mistake, according to experts.

"It's about emotion," Russel said, "and realizing that the market is the combination of the emotions of millions of people and you can have a crowd of incredibly intelligent people, and if they think there's a fire, they're all going to run like wild animals."

Participating in panic any time there is high volatility isn't the wisest choice, according to Russell.

"Realize that the market is rational and there are smart people in it," he says.

3. Too Much, Too Fast

Additionally, experts warn against trying to get in too deep too fast - especially for young or beginner investors.

"They try to jump in and they lose a lot of money and then they get discouraged, and it's better just to do it gradually - slow and steady wins the race, especially when you're young," Russell said.

What to Invest in

What vehicles should investors opt for?

1. ETFs, Index Funds and Mutual Funds

Funds like ETFs, index funds and mutual funds are almost always a safe bet for investors.

"The great thing about thinking by sectors is that it actually does empower people to use ETFs." Russell said.

Not only do ETFs and mutual funds provide beginner investors with the opportunity for broad market exposure, but they also add diversity to an investor's portfolio that may help them ride out volatility. Loewengart claims ETFs especially are good for beginner investors who have a limited amount of money to work with.

2. Sector-Specific Stocks

Both Loewengart and Russell advocate for sector-specific stocks.

While it's important to research every stock you invest in, Russell claims focusing in on specific sectors helps ease the load.

"It's easier to try and understand an entire industry than it is to understand a lot of individual companies," Russell said. "Not only does it increase your odds of choosing good investments, but also it's easier to understand what's happening in a big industry or a big sector than it is to try to focus on a lot of companies."

What sectors should you zero in on?

"When I think about the sectors of the equity markets, you can think about and draw different categories of being defensive or cyclical - depending on your view of where the economy is headed and where we are in the cycle," Loewengart says.

"So if you want to focus on defensive stocks, you'll gravitate toward sectors like healthcare, utilities, consumer staples - these are traditionally defensive stocks. On the other end, if you have the view that the economy is going to continue to grow, you want to focus on more cyclical-oriented stocks that are tied to the fortunes of the larger economy - industrials, consumer discretionary stocks, energy stocks," he said.

By narrowing the pool, investors can study specific sectors and decide which they are bullish on - and then invest accordingly.

3. Dividend Stocks

The dividend stock is a tried and true staple for beginner investors - and experts tend to agree they are generally a good bet. As the name suggests, dividend stocks are those that pay shareholders dividends - or, returns on their investment on a regular basis.

However, Loewengart cautions that dividends aren't always the holy grail they may appear to be - especially for young investors with time on their hands.

"Dividend-paying stocks can be attractive because a consistent dividend indicates a position of financial strength from a company, and those types of companies are often times well positioned to cope with changing environments, volatile environments and things of that nature," Loewengart said.

"But you need to recognize, if you do have a long time horizon, that a dividend-paying stock isn't always the best choice if your goal is long-term wealth accumulation," he says. "Dividends are paid to shareholders at the expense of those earnings being reinvested into the company. If the company has really good growth prospects, they can be better off keeping all the earnings in house and reinvesting them into the business."

Still, investors should examine their goals and time horizon before opting in or out for dividend stocks.

Why Invest Now?

Recent market volatility might seem like more of a con to investing now - but according to experts, especially for young investors, now is the best time to get into the stock market.

"The long time horizon of these young investors is their single biggest advantage. It's that long runway, that opportunity to compound returns ... which results in exponential growth - that is available to investors the earlier they start," Loewengart says. "And a young investor, a 20-something that's contemplating putting it off, should recognize that they're giving up this huge advantage and the mathematics of compounding and accumulating wealth. The math becomes less and less compelling the longer you wait. ... Those early dollars that you put to work will always end up being the shares that appreciate the most."

Additionally, apart from the magic of compounding interest that younger investors can enjoy, Russell says the current technological advances make for greater ease in trading and investing more so than 20 years ago.

"For people in that situation, simple long-term exposure to the broad stock market makes the most sense. I think it's also a message I would give to millennials and younger people getting into the market is that this is actually one of the best times to ever be involved in the market," Russell said. "Twenty years ago, commissions were much higher, bid/ask spreads were much higher - now you can be anywhere and be trading the market or access the market."

The Bottom Line

Experts seem to agree that steady, incremental investing coupled with a long-term point of view and accumulated appreciation is a recipe for making money in stocks.

"The keys are: be diversified, take the long-term point of view and stay the course," Loewengart said.