Investment StrategyNone The first and probably most widely used investment strategy is no strategy at all. I tried this one in the past and have no success stories to share. This strategy most often finds you buying high and selling low. Of course this is the opposite of what we want to do. Market Timing As we have said, buying low and selling high is the way to make money in the stock market. This is what the market timing strategy is supposed to do, but at what point do you buy and when do you sell? I have tried this one as well and have only losses to report. Even though your intentions are good when trying to time the market, you generally end up buying high and selling low. Buy and Hold Buying and holding is the most widely preached investment strategy. It makes pretty good sense since the market is generally up 75% of the time and many success stories using this strategy can be found. The only problem with this strategy is the effects it has on risk. If your original investment portfolio was 50% stocks and 50% bonds, after a number of years your stock portion would grow to where you no longer were balanced 50/50. As the stock portion increases, your risk increases. Re-Balancing The re-balancing strategy is a combination of the good portions of the market timing strategy and the buy and hold strategy that keeps the risk right where you want it. With this investment strategy, you revisit your portfolio at determined intervals and adjust the investments in your portfolio back to their original percentages. For example, let us say that at the end of a year you started with a portfolio of mutual funds invested in equal splits of 25% each. Fund A $25,000 25% Fund B $25,000 25% Fund C $25,000 25% Fund D $25,000 25% After one year, the portfolio is no longer invested equally across the funds since some funds performed better than others. Fund A $28,400 26.28% Fund B $26,700 24.71% Fund C $27,125 25.10% Fund D $25,850 23.92% At this point, most investors would probably sell Fund D since it did not perform as well. In reality the right thing to do is buy Fund D. You would rebalance your portfolio back to where each fund had 25% in it again. To do this you would sell out of Funds A and C and buy into Funds B and D. This would make you automatically buy low and sell high. This will not seem like the right thing to do, but you just have to do it and not get emotionally involved. You will be farther ahead by using this method than if you had used the buy and hold method simply because you are using the buy low, sell high principles. It just takes discipline. I have used this investment strategy for the last 2 1/2 years and it has worked.
You have to have a plan and the discipline to stick with it. Warren Buffet said it best "To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight, or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."
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