Investing in the stock market

Investing in the stock market is a good way to invest your money if you are a long term investor. Stocks are relatively low risk investments if you choose to invest in large well established companies. The risk profile can be a lot higher if you invest in penny stock and emerging markets. Investing in stock is always associated with a higher risk than bonds and saving accounts. Stocks are despite this in my humble opinion a better investment than bonds or other low risk instruments since they offer you a better return. Stocks have a better risk/reward ratio and have historically given the best return over time.

Other investments

What are Stocks?

Each share is an ownership stake in a company. Each share in a company gives you a small ownership in the company. If a company have 100 shares and you own 1 then you own 1% of the company. Most companies do however have millions of shares and your ownership stake from owning a few shares is very low. Most (but not all) shares give you the right to vote on questions that are put in front of the share holders at the share holder meeting. A shareholder does not have to right to interfere in how to company is ran day to day. In theory all shareholders have the same rights regardless of how many shares they have but in reality a owner with more shares will have more influence in the company.

How do you invest in stocks?

Investing in stocks is very easy. Buying a stock is no harder than it is to shop online. Knowing which stocks to buy can be harder. To invest in stocks you will need an account with a stock broker. Many banks are stock brokers but I recommend that you register an account with a specialized stock broker. You can read more about why here.

Once you have an account (and have deposited money into it) you are ready to buy your first shares. Simple locate the company you want to buy shares in within the trading platform and open the trading page for said stock. On this page you will find a lot of additional information that will help you to decide whether or not to invest in the stock in question. You can buy shares directly from the page. Simple enter how many shares you want to buy and at what price. Once you done this you are ready to press the buy button.A buy order will be issued once you click the buy button. The stock broker will then try to buy the shares in question on the stock market. There is no guarantee that they will succeed. The chance that they succeed will depend on what price you are willing to pay and what shares are available on the market.

In most case the broker is able to buy the shares for you quickly. Once the broker buys the shares they are added to your account and the buy order is listed as filled.

Most stock brokers offer a number of more advanced features that you can use to get even more control over your trading.

When is stocks a good choice

Investing in stocks is a good idea when you are looking to make long term investments and you are willing to assume a certain level of risk to be able to get a higher return on your investment. The stock market is volatile and can go up or down in the short term. The stock market has always given good returns over longer time frames. Long enough that you as an investor can wait out a dip in the market before you sell your shares. You goal should ideally be to own stocks for 10 years or more before you sell them. Many successfully investors invest in dividend stocks and their goal is to never sell a stock once they bought it.

When are stocks a bad choice?

Stocks are not a good way to invest money that you know you are going to need within a certain time frame. If you know you are going to need your money in one year then it is better to invest them in stocks or in interest bearing account. The risks associated with investing in the stock market is a lot higher if you are only going to invest short term. This is due to the volatility of a stock market. If a crash occurs you might en up losing a lot of money because you have to sell your stocks. If you on the other hand are investing long term then you can wait until the stock price goes up again before you sell and are not affected by these temporary drops in the market.

Never invest money that you know you are going to need within two years in the stock market. If you have money invested already and you know you are going to need the money soon then it can be a good idea to sell at least a part of the stocks and place the money in a more secure asset until you need it.

Which stocks should i choose to invest in

I do not give investment advice and I do not recommend individual stocks. It is up to you to choose stocks that are suitable for your investment portfolio and your desired risk profile. Make sure to make your own analysis of a stock before you buy it. Never trust recommendations blindly without doing your own research.

Whit that being said. I personally prefer to invest in dividend stocks that give me money in my pocket without me having to sell the shares. Dividend stocks are stocks in companies that gives a part of their profit to the share holder each year. How much you get varies greatly between different companies. Dividend stocks are a great way to build a stock portfolio that gives you a yearly salary as well as increases in value.

Different Types of Stocks

For the purpose of trading and investing, we tend to put different labels on stock, even when they – legally speaking – are the same type of stock and confer the same type of rights upon the owner. We do for instance talk about growth stocks, value stocks, dividend stocks, blue-chip stocks, red-chip stocks, green-chip stocks, penny stocks, defensive stocks, and cyclical stocks.

In this article, we will take a look at a few of these labels and help you better understand how they can be useful as you select stocks for trading or for your investment portfolio.

Growth Stocks

Growth stocks are the ones most people get excited about. These are companies that are expanding fast, reinvesting profits, and focus on scaling their business. You’re not buying them for stability—you’re buying them for potential.

These companies usually don’t pay dividends because they’re pouring their earnings back into new products, tech, or expansion. They might not even yield a profit yet. Think tech companies, biotech startups, or anything that is new and marketed with buzz words such as “disruptive” and “reimagining”.

The upside can be big—but so can the swings. They’re often more volatile and sensitive to market sentiment, interest rates, and earnings results. Perfect for traders who want movement, but will also attract investors who believe in the long-term story. They are not ideal if you want stability, and you can also not expect any dividend payments from growth stocks.

Value Stocks

When investors talk about “value stocks”, they typically mean stocks where they believe the market price is lower than what it should be based on fundamental analysis. This can for instance happen because of temporary issues, bad press, or market overreactions. Value investors look at the fundamentals—e.g. earnings, assets, debt, cash flow—and if the company still looks strong and healthy.

Value stocks are often the ones that don’t look sexy at first glance. They might be in older industries, growing slowly, or coming off a rough patch. These stocks tend to be less volatile and offer more downside protection. The idea is simple: buy them cheap, hold them while they recover, and let the price catch up to the company’s real value. They are popular among buy-and-hold investors who want to be in it for the long haul.

The risk with value stocks is of course that the upwards trend might never happen. The market price can continue to move sideways for years, or even fall lower and stay there. Sometimes, what looks like temporary stress or a rough patch is actually the first step to insolvency.

Blue Chip Stocks

Blue chip stocks are shares in large, well-established companies with a reputation for reliability. They’ve survived recessions, grown steadily, and become leaders in their industries. Think Apple, Coca-Cola, Johnson & Johnson—companies people know, trust, and rely on.

Blue-chip stocks tend to be stable, comparatively low risk, and they often pay dividends. (Fore more information about dividends, jump further down in this article.) Blue-chip stocks are not immune to downturns, but they’ve got the balance sheets and brand loyalty to weather storms better than most.

If you’re building a long-term portfolio, blue chips can be used to form your core holdings. You might not brag about them at a party, but they’re the ones that show up, do the work, and hold your portfolio together when things get shaky.

If you are interested in buying blue-chip stocks, a good place to start looking for suitable candidates are the indices known as blue-chip indices. You can for instance go through the constituents of these well-known stock indices to see if any of the companies would suit your investment strategy.

• S&P 500 The S&P 500 tracks 500 companies traded in the United States. It is considered a benchmark index for the U.S. stock market, and it includes a broader array of industries and sectors than most other major blue-chip indices.
  
  
• Dow Jones Industrial Average (DJIA) The DJIA tracks the performance of 30 stocks traded in the United States.
• The New Europe Blue Chip Index (NTX) This index tracks 30 of the top stocks traded in central, eastern, and south-eastern Europe.
• EURO STOXX 50 The EURO STOXX 50 tracks 50 of the Eurozone´s super-sector leaders.
• DAX DAX tracks 40 of the top stocks traded on the Frankfurt Stock Exchange (in Germany). It is to the German economy what the DJIA is to the United States economy. Unlike most other country indices, DAX takes dividends into account.
• The Financial Times Stock Exchange 100 Index (FTSE 100) This index tracks the 100 most highly capitalized blue-chip stock companies listed on the London Stock Exchange (LSE). It is informally known as “Footsie”.

Penny Stocks

At the other end of the spectrum, far away from the blue-chip stocks discussed above, you’ve got the penny stocks. When a stock is referred to as a penny stock, it typically denotes that it is low-price, low-volume, and very volatile.

Penny stocks can look very appealing, but they are extremely sensitive to hype and so-called pump-and-dump schemes. They are high risk and should be treated as such.

The category “penny stocks” is broad and varied, and you will find a lot of different companies here, including startups (who might go on to become something better in the future), companies that were once upon a time well-established but are now on the brink of bankruptcy, and various businesses that have been penny stock companies for a long time and nobody’s really paying attention to. The risk is huge, but the reward can be too—if you get in at the right moment, manage your position carefully, and enjoy a hefty portion of luck.

These stocks are not for your retirement account. They’re for traders who thrive in high-risk, high-potential setups and know how to cut losses fast. Sometimes, penny stock double or triple in a week. Sometimes they drop like a stone.

It’s a wild space, and it becomes even more volatile when it is targeted by scammers who pick a penny stock for a quick pump-and-dump scheme. Since liquidity is typically low, even fairly small purchases can make the market price move upward in a noticeable way. It does not take much to get the ball rolling, and the scammers can easily use various techniques (including social media posts and influence marketing campaigns) to promote the stock to unsuspecting buyers as “the next big thing”. Some more experienced and jaded traders will spot the symptoms of a pump-and-dump, but still jump on the train, making sure to exit well before the peak. Eventually, less savy buyers are left holding the bag, being forced to watch in despair as their stop-loss orders can´t even be executed at the set price because the house of cards is collapsing so fast and everyone wants to close their positions.

Defensive Stocks

Defensive stocks don’t swing as hard during market ups and downs. They tend to come from industries people rely on no matter what—like healthcare, food, household goods, or utilities. When the economy slows down or the market drops, these stocks often hold up better than the average. You won’t get huge returns here, but you might get protection when other sectors are falling apart. That makes defensive stocks useful for balancing a portfolio or riding out uncertainty without going fully to cash, gold, and bonds.

Cyclical Stocks

Cyclical stocks follow the rhythm of the economy. When things are booming, these companies usually do well. When there’s a slowdown, they get hit harder. Industries like travel, construction, retail, and luxury goods fall into this group. You can make good money swing trading these during economic uptrends—but timing is everything. Cyclicals are all about understanding the bigger picture. They’re not buy-and-forget stocks—you need to know where we are in the economic cycle and adjust accordingly.

Dividend Stocks

Dividend stocks are stocks in a company with a strong track record of paying dividends. A stock company can decide to pay out some of its profit to its owners (the shareholders) and this is called a dividend payment. There are many stock companies, typically large and well-established ones, that pay dividends on a regular schedule, e.g. once a year.

Many of the blue-chip stocks are also dividend stocks, but the two terms are not synonymous, and a company can be considered blue-chip without paying dividends and vice versa.

As can be expected of well-established and stable companies, dividend stocks will not double their price over night. Instead, they tend to grow steadily over time, and pay you money while doing so. They are often selected by individuals who are fairly close to retiring and want stocks that will give them an income in retirement. For a lot of investors, that steady income, combined with value preservation and protection against inflation, is the main point.

If you’re looking for consistency, compounding, and some breathing room from wild market swings, dividend stocks can be a great choice. They are less popular in portfolios with an emphasis on fast stock price growth.

What Is a Dividend?

A dividend is a portion of a company’s profits that gets paid out to shareholders. It’s typically distributed every quarter, though some companies pay monthly or annually. The amount is based on how many dividend-paying shares you own. Therefore, a person holding 100 shares will get twice as much as a person holding 50 shares.

Not every company pays dividends—usually only businesses that are long-term profitable and past their rapid growth stage. They don’t need to reinvest every dollar back into the business anymore, so they share it with their investors instead. For people who want a regular income stream from their investments, this can be a game changer. It’s not just about watching a stock price rise—it’s about getting paid while you wait.

Why Do Companies Pay Dividends?

Companies that pay dividends are usually stable, well-established, and cash-rich. They don’t need every dollar for expansion or development, and instead of just sitting on the cash, they return some of it to shareholders. After all, the purpose of a company is to yield a profit for the owners.

Paying dividends can also have indirect effects that are positive for the company and its owners. It signals confidence and tells the market, “We’re doing well. We’ve got enough profit to pay our investors and run the business.” That tends to attract long-term investors, retirement accounts, and people looking for lower-risk returns.

Once a company starts paying dividends, it usually doesn’t stop unless something major happens. Cutting a dividend can spook investors and tank the stock price—so these companies tend to be pretty committed to maintaining those payments.

With that said, there are no guarantees. Even with a long track-record of paying dividends, a company can stop at any moment. Dividend payments need to be approved by the shareholder meeting, and the shareholder meeting might decide that paying dividends is no longer in the best interest of the company and its shareholders.

What Makes a Good Dividend Stock?

A good dividend stock doesn’t just pay—it pays consistently. Some companies even increase their dividends year after year, a sign of healthy finances and solid management. Such companies are called “dividend growers”. If they have raised payouts for at least 25 consecutive years, they are labeled “dividend aristocrats”.

But there’s a catch: not every high-yield stock is a good one. Sometimes a company with a huge dividend payout is doing it to cover up deeper problems, and the dividend might not be sustainable. That’s why you have to look at the quality of the company—not just the size of the payout.

Things like payout ratio (how much of their earnings go to dividends), cash flow, debt levels, and dividend history all matter. A smaller, steady dividend is often safer than a huge one that might disappear the next time earnings dip.

Dividend Aristocrats

When a company has not only paid dividends, but actually increased the size of its dividend for at least 25 consecutive years, we call it a dividend aristocrat. Famous examples of dividend aristocrats are the  City of London Investment Trust, Caledonia Investments, Bankers Investment Trust, and Alliance Trust, which have – at the time of writing – actually increased their dividends for more than 50 consecutive years; a truly remarkable feat.

If you are interested in investing in dividend aristocrats, a good place to start looking for suitable companies are the S&P 500 Dividend Aristocrats index. Launched in May 2005, the S&P 500 Dividend Aristocrats is a stock market index composed of the companies in the S&P 500 index that have increased their dividends in each of the past 25 consecutive years. Some investors invest in these companies as an alternative to bonds when they want to make a comparatively safe and income-focused investment.

Note: Some indices have Dividend Aristocrats in their name, but do not require 25 consecutive years of increased dividends. To be a part of the S&P MidCap 400 Dividend Aristocrats Index, it is enough for an S&P MidCap 400 company to have increased its dividends for 15 consecutive years – 25 years is not required. Another example is the S&P Europe Dividend Aristocrats, which is a subset of the S&P Europe 350, and have its threshold at 10 consecutive years.

Why Investors Love Dividend Stocks

The biggest reason people love dividend stocks is the passive income. If you’re retired, semi-retired, or just trying to build a stream of cash flow without constantly selling investments, dividend stocks are a go-to.

But it’s not just about the checks. Reinvesting those dividends—using them to buy more shares—leads to compounding. Over time, your income snowballs, because you’re earning money from shares that you bought using your dividends. That’s how some investors build serious wealth over the long haul, even without massive price growth.

Dividend stocks also add stability. In volatile markets, a stock that pays you to hold it is often easier to stick with than one that just sits there doing nothing. You’re getting value even when the price dips or fail to grow.

Who Should Consider Dividend Stocks?

If you’re looking for long-term income, want to reduce portfolio volatility, or just like the idea of cash payments from your investments, dividend stocks can be a smart choice. They’re not just for retirees—they’re great for anyone who wants a more balanced, income-focused approach to investing. If your strategy involves building a base, generating steady returns, and holding strong companies through good and bad markets, they belong in your portfolio.

If you’re chasing fast gains or trying to swing trade every move, dividend stocks probably won’t excite you. These companies tend to move slower and focus more on wealth preservation than aggressive growth.

How to Find Good Stocks 

Finding good stocks isn’t about guessing, gambling, or jumping on whatever’s trending. Whether you’re investing for the long term or day trading for short-term gains, the goal is the same: find stocks that fit your strategy, your goals, and your level of risk tolerance.

With thousands of stocks in the market and constant noise from social media, finance news, and YouTube “gurus,” it’s easy to feel lost. But spotting a solid opportunity isn’t about luck. It’s about knowing what to look for and having a process that helps you tune out the distractions.

Below, we will go through a few points that will hopefully help you find stocks that actually make sense for you.

Start With Your Strategy

Before you even open a chart or scan the news, you need to define what “good” actually means—for you. A good stock for a long-term investor might have stable growth, strong fundamental figures, and a solid dividend history. But for a swing trader using technical analysis, the ideal stock could be one that’s showing a clear breakout pattern, with strong momentum and high trading volume.

Your trading or investing style shapes everything. The best stock in the world for someone else might be completely wrong for your strategy. Are you buying and holding for the next five years? Are you building a retirement portfolio? Or are you looking for something you can ride for a week and exit with a quick gain? Maybe you are a day trader? Your trading style and goals will decide what you should start looking for.

Use Stock Screeners to Narrow Down the Field

Once you know what you’re looking for, you can use stock screeners to filter out the noise. These tools let you search for stocks based on specific criteria—like market cap, volume, price trends, or financial performance. It’s the difference between aimlessly scrolling through tickers and actually finding candidates that match your setup in a timely manner.

If you’re investing, you might filter for strong fundamentals like steady revenue, low debt, or consistent profitability. If you’re trading, you’ll probably care more about recent price action, chart patterns, and technical indicators like RSI or moving averages. Either way, a screener helps you go from thousands of stocks to a handful that deserve a closer look.

Trend-following for short-term and medium-term strategies

Once you’ve got a few names that look promising, the next thing to consider is the trend, especially if your time horizon is short-term or medium-term. Even if a company has great financials or news, buying into a downtrend without a clear sign of reversal can be risky—especially if you are not investing long-term. For novice traders, it is usually safer to go with the flow than to bet against it.

If the stock is making higher highs and higher lows with solid volume behind the moves, that’s often a sign of strength. On the other hand, a choppy or sideways chart with no clear direction might be worth skipping, unless you’re waiting for a breakout or specific technical setup.

Learning more about technical analysis can help you with this point.

Fundamentals Analysis

While short-term traders tend to focus on technical analysis, investors with a longer time-horizon tend to be more interested in fundamental analysis. Technical analysis is focused on interpreting historical price data in order to predict future price movements. Fundamental analysis, on the other hand, is more about analyzing the company and the world in which it exists.

If you’re looking for long-term plays, you’ll want to dive into the company’s actual financial health. This includes revenue growth, earnings consistency, debt levels, and profit margins. You want to know not just what the company is doing today, but whether it has the strength to survive and grow in the future.

Look at factors such as their competitive position in the market, how they’re managing expenses, and what their outlook looks like. If a company’s only story is hype, with no real performance to back it up, that’s a red flag. A strong balance sheet, solid leadership, and real-world demand for their product go a lot further than a flashy headline or viral tweet.

For Traders: Watch for Clean Setups

If you’re not in it for the long haul and just want to catch a price move, then the chart becomes your best friend. A stock with clear support and resistance levels, a clean breakout pattern, or a pullback to a key moving average might be setting up for a trade. Volume helps confirm whether the move is real or just noise.

You don’t need to understand every pattern or indicator out there. Just pick a couple that make sense to you, learn how they behave, and look for those situations consistently. And make sure there’s enough volume—because the best setup in the world means nothing if you can’t get in or out of the trade easily.

Stay Organized and Be Patient

Once you find a few good stocks, don’t rush into them blindly. Add them to a watchlist. Track how they move. Wait for them to hit your levels or give you a signal you trust. Patience can help turn a decent setup into a high-probability trade or a smart long-term entry. Sometimes the setup needs a few days—or weeks—to materialize. Having them on your radar gives you the edge of being prepared, not impulsive and reactive.

Don’t Let Hype Cloud Your Judgment

There’s always going to be a stock “everyone” is talking about. But just because something is popular doesn’t make it a smart buy. If a stock doesn’t match your plan or makes you feel rushed or emotional, skip it. FOMO is one of the fastest ways to lose money in the market.

Stick to what you know. Let your trading strategy work for you. And remember that it’s better to miss a trade than to take one that doesn’t belong in your strategy.

Index Funds

Not everyone wants to spend their evenings reading earnings reports, scanning charts, or deciding whether to buy Apple or that new tech start-up. And honestly? You don’t have to. For a lot of people, the smarter—and much easier—move is to skip picking individual stocks altogether and go with something more hands-off, like classic index funds or exchange-traded index funds.

Index funds are one of the simplest, most effective ways to gain exposure to the stock market. They’re built for people who want low stress and a long-term plan that doesn’t require constant tweaking. Whether you’re new to investing or just tired of trying to time your trades, index funds might be a good addition to your portfolio.

What Is an Index Fund?

An index fund is basically a basket of stocks (or other assets) designed to mirror the performance of a specific market index. So instead of buying one company, you gain exposure to the piece of the market that this index is tracking.

For example, if you buy a fund that tracks the S&P 500, you get exposure to the peformance of 500 of the largest U.S. companies—like Apple, Amazon, Google, and Coca-Cola—all at once. No picking, no guessing. Just broad exposure in one simple move.

There are index funds for different slices of the market—large caps, small caps, tech, global stocks, certain countries, and much more. You choose the fund that matches your investment goal, and let it do the heavy lifting.

It should also be said that some index funds don´t even track a stock index – they track some other type of index and you can use them to gain exposure to things such as foreign currency exchange rates or commodity prices.

Why Index Funds Might Be Solid Alternative For You

Index funds do not try to beat the market—they just aim to match it.

Most actively managed funds—where pros try to pick winning stocks—actually don’t beat the index consistently over time. And actively managed funds usually charge considerably more in management fees than index funds, which means there is less money left for you to invest.

Index funds keep costs low, keep risk spread out, and let the power of the market do its thing over time.

It’s simple math. If this sliver of the market goes up 8% a year and your fund closely tracks that sliver of the market, you’re up 8%—minus the fee.

Built-In Diversification From Day One

Diversification is one of the golden rules of investing. Don’t put all your eggs in one basket, right? Funds, including index funds, can be used to achieve diversification from day one. Instead of choosing ten different stocks and buy them to spread your risk, you buy shares in one fund and instantly have exposure to hundreds (or even thousands) of companies.

This can be especially important for novice investors on a small budget, who might not be able to go out in invest in a multitude of different companies from the get go. If you have small amount of money to invest each month, a fund with good diversification can be a very smart choice. If one stock crashes, it doesn’t take your whole portfolio down with it. The winners help balance out the losers, and your investment keeps moving forward.

With that said, exactly how diversified an index fund is will vary, so you need to do your research. A fund may invest in 300 different companies, but if all of them are within the same industry and sector, and strongly tied to the economy of a certain country, you might see them all take a hit at the same time down the road.

Index Funds Can Be Great for Long-Term Goals

If your plan is to invest steadily and let your money grow over years or decades—whether for retirement, a house, or just financial freedom—index funds can be very useful.You don’t need to be a market expert. You don’t need to pick The Next Big Name. You just need to stay consistent and give the market time to work.

Low Fees, High Efficiency

As mentioned above, it is possible to pick index funds where the fund fee is much lower than the average for actively managed funds (funds that try to beat the market, rather than simply track an index).

Actively managed funds often charge 1% or more annually, which can eat into your returns over time. Index funds usually have ultra-low fees—sometimes as little as 0.03% per year. That’s pennies compared to what some mutual funds charge.

Since index funds are automated and rules-based, index funds don’t need constant trading or decision-making. That keeps costs down and efficiency up, which means more of your money stays invested. Each dollar you spend on fees is a dollar you can not invest, so you are not just losing a dollar – you are losing all the money that dollar could have earned for you. If you want to invest in an actively managed fund, make sure it is one where you actually get more bang for your buck in terms of higher returns without insane risks.

Who Should Consider Index Funds?

If you want long-term growth without spending a lot of time and energy managing your portfolio, index funds can be a suitable choice.

They’re popular among people who:

• Don’t want to pick individual stocks
• Prefer low-maintenance investing
• Care more about long-term results than daily fluctuations
• Want broad market exposure with low fees
• Want diversification from day one, even when they only have a small amount of money to invest
• Are okay with simply tracking the market instead of trying to outperform it

Even experienced traders often keep part of their portfolio in index funds, just for the consistency and stability they provide.

This article was last updated on: April 14, 2025