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Your Cash, Your Choice: Investment Strategies for Every Investor

Author

AJ Neeme
July 21, 2024

 

In this week’s edition:

  • It’s a Scary Time to Invest

  • Finding Your Fit: Cash Deployment Strategies

It’s a Scary Time to Invest

The S&P 500 has hit 24 All Time Highs in 2024 so far.

“This isn’t normal.”
“Should I keep investing ? It’s bound to pull back any day now.”
“I watched an interview where an economist predicted a Crash soon.”

Here’s the thing: The Market will crash.

At some point.

But no one knows Why, When, How bad and How long.
If someone guesses correctly, they’re more likely to be wrong the next 15 times than right again.

I’m not sure if this makes you feel better or worse but this is the reality of the Stock Market.

What does make me feel better is that the below 3 things are more important than timing the next high or low:

Optimism about humanity's future + Belief in your Investments + Long term time horizon

  1. Optimism about humanity’s future: there’s no point investing in Tech Stocks if you think humanity’s about to collapse

  2. Belief in your investment: do you have conviction in what you’re investing in ? Or are you FOMO’ing into it ?

  3. Long Term Time Horizon: Are you nearing retirement or just getting started ? Will you need this investment in 5, 10, 20 years ? This will determine how much risk you can/should take on.

Now that we've touched on the mindset, let's talk tactics.

Cash Deployment Strategies: Finding Your Fit

Let’s say you’re a complete beginner. You have $10,000 you’d like to Invest.

Should you invest it all in one go ? Should you wait for a crash ?

There are multiple ways you can deploy your cash. None are perfect and each will appeal to a different kind of investor.

Here's a breakdown of some common strategies including:

  • Pros

  • Cons

  • Likelihood of Success

1. Dollar-Cost Averaging (DCA): The Steady Hand

DCA involves investing a fixed amount of money at regular intervals, regardless of the market's ups and downs.

  • Pros:

    • Eliminates the need to time the market.

    • Reduces the impact of volatility by averaging out the purchase price.

    • Promotes disciplined investing.

    • Likelihood of Success: High for long-term investors.

  • Cons:

    • May miss out on potential gains if the market consistently rises.

    • Can be less exciting than trying to time the market. (Good luck with that though)

2. Lump Sum Investing: The Bold Move

Lump sum investing involves deploying a large amount of cash all at once.

  • Pros:

    • Can maximize gains if the market performs well.

    • Takes advantage of potential compounding returns over time.

    • Likelihood of Success: Varies greatly depending on market timing and investment choices.

  • Cons:

    • Higher risk if the market declines shortly after investing.

    • Requires confidence in market timing.

3. Day Trading: The High-Octane Gamble

Day trading involves buying and selling stocks within the same trading day to capitalize on short-term price fluctuations.

  • Pros:

    • Potential for high profits if successful.

    • Excitement and adrenaline rush for those who enjoy fast-paced trading.

  • Cons:

    • Extremely high risk and potential for significant losses.

    • Requires extensive knowledge, experience, and emotional control.

    • Not suitable for most investors.

    • Likelihood of Success: Low for most individuals.

4. Swing Trading: Riding the Waves

Swing trading involves holding stocks for a few days or weeks to capture medium-term price movements.

  • Pros:

    • Less risky than day trading.

    • Can be profitable if you can identify trends.

    • Offers more flexibility than long-term investing.

    • Likelihood of Success: Moderate, but requires skill and knowledge.

  • Cons:

    • Still requires significant knowledge and analysis.

    • Can be stressful due to market fluctuations.

    • May miss out on long-term gains if you sell too early.

The Bottom Line: Your Strategy, Your Success

Ultimately, the best investment strategy is the one that aligns with your individual goals, risk tolerance, and financial situation.

There's no one-size-fits-all approach, and it's essential to do your research, understand the pros and cons of each strategy, and consider seeking professional advice if needed.

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The information contained in this newsletter is for general informational purposes only. It should not be construed as financial or investment advice. Please consult a qualified financial advisor before making any investment decisions.