How to invest?

How to invest?

There is not a shortage of recommendations of what your investment portfolio should look like. It is common for people to think, “how should I invest this money?” Once you have established a clear, consistent way of saving money (or perhaps you inherited a lump sum), the next question to ask is how to invest it.

You can follow the advice of Warren Buffet and his portfolio recommendation. Or Ray Dialo and his recommendation. If that’s too complicated, you can always do a three-fund portfolio made legendary by the Bogleheads (John Bogle). Or there is the Ivy 5 portfolio by Meb Faber. Or perhaps the simple, but very effective 60/40 portfolio. As you can see, there is not a lack of resources devoted to trying to figure out what the best portfolio is as it relates to return and risk.

But perhaps we are asking the wrong question?

What if our question should not be, “how should I invest?”, but rather, “what investment strategy will keep me invested in the market?”

If you’ve been around financial services very long, you know that time in the market is much more important than timing the market. And what that really means is, how can I stay invested in the market when it’s going down and all news seems like bad news? Human nature is to want to sell, go to cash, and then put money back into the market once it starts going back up again. But there is a problem with this.

​Charles Schwab wrote an excellent article about trying to time the market and the alternatives available for it. (Conclusion: Investing immediately or dollar cost average into the market is your best strategy). Trying to wait for the market to drop and then invest is a recipe for disaster. Trying to time the market in any circumstance is going to be difficult, but unrealistic over the course of a person’s investing career.

The other aspect of your portfolio is missing out on the best days. As this article clearly states, if your portfolio is sitting in all cash and you are waiting for a rebound, then perhaps you’ve already missed the best days of growth.

Which brings me back to my original thought…maybe we shouldn’t be asking ‘how should I invest this money?’, but instead ask ‘what investment strategy will keep me invested in the market?’

So, what investment strategy are you using? Is it keeping you invested in the market? And do your goals align with this strategy?

At 3rd Level Wealth we use the bucketing investment strategy. More to come on this in the future…

‍