3 Steps to Winning in the Stock Market

Hello, I'm Dustin, and welcome back to We're Talking Money. Today we're going to talk about three easy steps to winning in the stock market.

Everyone wants to invest in the stock market because it can increase your chances of achieving your long-term financial goals, but the stock market can be a scary place if you have no experience. Let's face it, many people don't make wise financial decisions when it comes to purchasing stocks or investing in their portfolio. There's always going to be inherent risks when it comes to investing in the stock market, but there are ways you can spread out that risk. So what are they, and where do we start?

The first step: diversification, both sector and growth and value diversification. We want to make sure that we're invested in different companies and different sectors, or types of companies. Generally, when one type of company or one sector is doing well, there's going to be another sector that isn't doing quite as well, and vice versa. This helps even out the ride in your portfolio. It helps add some safety into your investments.

Now, there's a seven total sectors: information technology, health care, financials, consumer discretionary, communication services, industrials, consumer staples, energy, utilities, real estate and materials. We've all heard the phrase "don't put all your eggs in one basket," and that's what sector diversification allows you to do: not have all your eggs in one basket.

Or you can think about it like a prize wheel game. Now, let's assume that we have a prize wheel like we do right here, and very low odds but a very nice prize. Well, you might want to take a couple chances like this in your portfolio, or at least take a couple spins. Now, if there's another game with average prizes but maybe a little bit better chance to win something, we're probably going to want to spend some time there as well. Now, may not have the big winner, but we've got a better chance of at least getting something. And it's the same in the stock market. You at least want to spend some time here, because that's how you build a nice diversified portfolio, even if you may not have the big winner.

Another type of diversification: growth and value diversification. In each sector there's different types of companies, growth and value. Now, growth companies can be a little more volatile, but they're going to give you an opportunity for a lot of growth in your portfolio. Think about companies like Apple, Tesla, Amazon, Netflix. Those are all considered growth companies in the stock market. Definitely want some of these in our portfolio.

Next, the value company. The slow and steady wins the race. Think about the tortoise and the hare. This is the tortoise. So this would be companies like Walmart, Johnson and Johnson, Home Depot. Those companies have been around for a very long time and have performed well.

Most people want that get-rich-quick scheme, but in the real world it's really not likely to happen. The best way for long-term financial success is making a financial plan and sticking to it over a long period of time. Foreign interest is extremely powerful, and if used to your advantage, it can give you the wealth you desire, just maybe not tomorrow. But by being consistent over time, it's going to give you the best chance of buying stocks at a great price. It's not about being greedy, it's about being consistent.

Step three: confidence in the long-term market. Now, this one is easier said than done, especially with one of those stocks that you thought for sure was going to be a winner start to drop in value. You'll start to have the thoughts: should I sell? Should I get out now? Should I pull the plug? When you're having those thoughts, I want you to take a deep breath and just think about: do you need this money in the near future? If you've built a solid financial plan, you should have money for emergency funds and day-to-day expenses. So rather than thinking about "should I sell?" and panicking, think about, "Hey, this might be a good opportunity to buy more." Foreign.

This is much easier to do when you purchase stocks that you believe in, companies that you want to support. I think about my largest holding in my portfolio, Apple. I'm thankful and I'm grateful to own as much Apple as I do. And I think about my household: we have Apple products everywhere, MacBook, iPhone, HomePods, iPads. I believe in the company long term, and it really brings me joy to own Apple stock in my portfolio.

By following these three steps, you'll have a well-diversified portfolio that you're consistently funding with the companies that you want to own. In a short amount of time, you'll be amazed at how much stock you have in those companies that bring you joy that you own.

Hope this is helpful. Look forward to any feedback. Please like, share, subscribe, and we'll see you soon.