If you are new to investing, it easy to become overwhelmed and confused with the amount of information out there. With that being said, there are certain investing strategies that can help you reach your financial goals.
In order to become a successful investor, it is important to develop and implement a strategy that works for you. A good strategy will help you with your returns and allow you to expand your knowledge on investing even further.
There is no one size fits all strategy, so you are going to have to figure out what works best for you. You have to do your research and figure out your risk tolerance.
Let's take a look at three easy to learn investment strategies and see how they fit your lifestyle.
Investment Strategies for Beginners
Buy and Hold
Ah, the good ol' buy and hold strategy. This is by far the easiest concept for investing. It is very simple.
You buy a stock, and (usually) never ever ever sell. Ever.
The buy and hold investing strategy indicates that having "time in the market" is better than "timing the market." Long term returns will outperform the short term volatility, along with saving you on trading costs.
There is no need to worry about whether the stock goes up or down, because you plan on holding it for a long period of time, that way you don't need to stress over trading.
With that being said, you are not just randomly picking companies to invest in. You need to do your research, and invest in companies you believe will do well over time.
Investors typically purchase stock of well-known established companies, such as McDonald's ($MCD) and The Coca Cola Company ($KO).
Investors also like to buy and hold companies that pay a dividend.
This essentially means that a company will pay you, either annually or quarterly, to hold its stock. Holding dividend paying stocks will provide you with more cash to buy even more stocks. This is why investors emphasize compound interest so much.
The Buy and Hold strategy is perfect for new investors who are looking for a low-stress way to invest. You won't be constantly looking at the market, or sweating over your money. You simply believe that the companies you invest in will do well in the future and continue to grow.
Although, be aware that the stock market is often a rollercoaster feeling. You'll be tempted to sell at times when the market gets rough, but if you are committed to a long term portfolio, this strategy will suit you well.
Dollar Cost Averaging
Dollar cost averaging is a very simple investing strategy as well. You basically decide to make investments every month of the same dollar amount regardless of what the stock price is.
For example:
Let's say you decide to invest $200 a month into the stock market. You take that $200 and at the end of every month you buy shares of Ford ($F) regardless of what the price is.
No matter if it is $8 a share, or $14 a share, you will be investing that money.
Monthly investing is one way of doing Dollar Cost averaging, but you can do it biweekly, or weekly as well.
For example:
Let's say you decide to invest that same $200 a month into the stock market, but weekly.
You take that $200 and break it down into $50 a week. At the end of every week you decide to buy $50 of Ford ($F) regardless of what the price of the stock is.
Pros:
Because you are spacing out your entry points, you are essentially avoiding timing the market, which is nearly impossible to do and is risky. You will get an average purchase price, so you avoid buying the stock when it is too high.
Dollar Cost Averaging is similar to the buy and hold method and will teach you how to stay disciplined in the market. If you are looking for another low-stress investing strategy, this may be for you.
Cons:
Because you are spacing out your entry points, you will sometimes miss the lowest buying point if the stock is going through a rough patch. Just be mindful of this when you are using this method.
Value Investing
Imagine going into the supermarket expecting to buy a box of cereal for $3, but when you get to the store the cereal is on sale for $1 a box. Then the store manager tells you that the price of the cereal will eventually jump back up to $3 by the end of the month.
You would probably buy a bunch of boxes right? Well this is what value investing essentially is.
Value investing is basically just buying stocks that you think are on sale, just like the cereal.
Investors realize that stocks are being undervalued and think they will eventually pop back up in the near future, or in the long term. When these stocks grow in value, the investor makes a profit because they bought them "on sale."
For Example:
We have determined that Ford ($F) had a recall on a newer vehicle which caused the price to drop from $15 a share to $10 a share.
However, after our calculations and research, we believe that Ford's true value is still $15 and will return there over time. We realize that the stock is now "on sale" and we purchase it.
If the price eventually returns to $15 like we anticipated, then we make a $5 profit for every share that we buy.
Value investing is a great strategy if you are willing to do some research. You can find stocks that are on sale, and eventually can make you an awesome profit.
Cons: Be mindful, sometimes it is difficult to determine whether or not a company is truly being priced at a discount. Do your research, and figure out what works best for you.
What About Bitcoin?
Bitcoin is not considered a stock. It is considered a Cryptocurrency.
Some people say it is still undervalued though.
