Helping You Choose The Best Investing Strategy

There are many different strategies that you can use to start investing.

Some pose more risk, whilst others are easier, and can be automated.

I’m putting the 3 most popular investing strategies up against each other, to see which is best for you and your financial goals.

Each strategy is riskier than the previous, but with higher risk, comes a higher potential reward.

Dollar Cost Averaging

Dollar cost averaging is the number 1 investing strategy for beginners.

Dollar cost averaging involves investing small portions at regular intervals. This is typically weekly or monthly. This is instead of going “all in” at any particular point.

The main benefit of dollar cost averaging is to reduce risk, by investing at different prices.

If you decide to go all in at any given time, you’re exposing yourself to a lot of risk.

Nobody knows where the prices of assets are headed for the short term.

Anything could happen tomorrow, or next week, or even next year. So, the smartest thing to do would be to come up with a sum of money you can invest every week, or month.

This way, you can:

• Buy dips if the market drops

• Have an average buy price which follows the market trends

• Avoid being hung out to dry by a sudden drop

• If you ask any investor, over a long term period, assets always go up.

But, for the short term, it’s best to minimise your risk and invest your money over a long period of time.

The best part?

A lot of investment platforms will let you automate your deposits. This means you can invest into your favourite assets without lifting a finger.

This is the number 1 strategy I’ll recommend to anyone looking to start investing.

Buying The Dip

Buying the dip is a similar strategy to dollar cost averaging, but is a little more hands on.

With buying the dip, you’re still buying regularly, but there’s a little more thought put into your buys.

Buying the dip involves:

• Keeping up to date with market conditions

• Buying when the market has a sudden drop, or crash

• Which helps you buy your investments for cheap.

Again, assets over time always go up. But, it can be very profitable to be able to time your deposits so you can invest at discount prices.

Think of dips as sales. Why wouldn’t you want to buy your assets at lower prices, for a better future return?

Buying the dip requires you to be a more active investor, keeping a closer eye on the performance of:

• Stocks

• ETFs

• Real estate etc.

And looking out for price drops.

Sudden price drops can occur through:

• Economic data (inflation figures, interest rates etc.)

• Geopolitics (war, pandemics etc.)

• Overall market sentiment (fear and greed)

It can take a while to master this.

But, timing your investments can be more profitable than dollar cost averaging.

Lump Sum Investing

Lump sum investing is easily the riskiest strategy of the three.

But, because it’s risker, it could come with more reward.

It’s a self explanatory strategy. Rather than investing at regular intervals, you’re going “all in” at one price point.

Investors can do this to maximise their returns, but it does come with risk.

You can choose to:

• Lump sum… right now. Get in ASAP and hold for the long term.

• Wait until you’ve hit a certain amount of money, say $10,000.

• Wait for a dip in the market to get in at a better price.

Like I said earlier, going all in does come with more risks.

Nobody knows where the prices of assets are headed, at least for the short term.

Just because prices drop 10%, that doesn’t mean it will rise by 10% the next day.

It could easily drop another 10% the day later.

This is why you have to be careful when investing large sums all at once.

But, aside from my pessimism, there can be huge upside potential of lump sum investing.

But, if you’re someone who doesn’t want this level of risk when you’re investing, stick with dollar cost averaging.

You’ll do very well for yourself, even by minimising risk.

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