Not too long ago everyone was talking about great ideas for making money – stock markets, real estate, emerging market funds, A share trading… Even people A LOT less smart than you seemed to be doing great. Now, however, the markets are unpredictable and the economic news is frightening. Investing is always less sexy when the charts aren’t heading up, but that can be just when you should pay the most attention. If you have money in real estate or markets, it is important to figure out an investment plan that makes sense for you.
Successful investors have a strategy
Deciding on an investment strategy depends a number of variables – including how much money you have to invest, the length of your investment horizon (or time limit), your tolerance for risk, and the amount of time you are willing to spend tending your portfolio.
To help understand just what Investment Strategy is and determine which one suits you, let’s take a look at three common approaches to investment: Dollar Cost Averaging, Market Timing and Technical analysis.
Dollar Cost Averaging: Simple, Safe, Systematic
Dollar Cost Averaging is the strategy that most experts recommend for individual investors. In the DCA approach, you decide on a regular (monthly, quarterly, semi annual or annual) amount to be invested, which you then invest regardless of market or economic conditions. This is a conservative approach that spreads risk and helps long-term investors avoid the risk of buying at market highs.
The advantage of the Dollar Cost Averaging strategy is its safety, simplicity and consistency. The downside? Returns tend to lag the market during bull moves.
Market Timing: Macro-economic analysis
Market Timing has lost it’s luster in the last few years, but still has it’s share of adherents. If DCA is about staying the course then Market Timing is about jumping in and out at the right time. Market timers try to spot market troughs and invest in beaten-down stocks – and then try to sell as the value of the shares reaches a top. The advantage is that there is a real opportunity for stellar returns if you are smart, lucky and brave. The disadvantage is that many market timers end up buying at market highs and selling in despair at market lows.
Technical Analysis: Constant monitoring and Active trading
Technical Analysis has many followers in Asia, but is considered a specialist technique in the west. Sometimes called “chartists”, technical analysts do not care about the fundamentals of an investment – just the price history. They look for traditional trading patterns that can predict which way the market is heading. Although technical analysis can look like witchcraft, it actually has some very solid theoretical underpinnings.