Investment strategies
What’s right for me?
When you start investing, you’ll hear about all kinds of strategies, such as buy and hold, dollar cost averaging, growth investing and buy low, sell high. But what do these terms actually mean? And what do these strategies involve?
Investing involves risk. You could lose all or part of your initial investment.
Dollar cost averaging
Dollar cost averaging is a strategy that involves investing a fixed amount at fixed times, whatever the price at the time of investing. So you buy on days when prices are low, as well as on days when they are high. In time, your purchase price will average out.
Dollar cost averaging means investing at intervals. This could be every week, every month or every three months. You can do this through periodic investing, which involves automatically investing money at set times. This takes a lot of the work off your hands.
Buy low, sell high
The buy low, sell high strategy means buying an investment when the price is low and selling it when the price rises. It is an active way of investing, which requires you to keep a close eye on stock market prices. The aim is to make the highest possible
It’s also important to be aware of the fees. If you frequently buy and sell investments, you’ll incur more fees. This, in turn, affects your net return: the more fees you pay, the lower your profits will be.
Lump sum
Whereas dollar cost averaging involves investing at intervals, lump sum is the exact opposite. You invest a large amount in one investment product in one go. As you’re investing a one-off amount, you stand to earn an immediate return on the entire investment. But you also run more risk. If the value of your investment drops, you could lose a large portion of the initial amount (albeit temporarily).
Buy and hold
Buy and hold is a strategy whereby you buy an investment product and keep hold of it for a long time. You are investing for the long term; perhaps 15 or 20 years. Why? The longer you invest, the lower the risk of disappointing investment results thwarting your investment goal. If you have enough patience and can afford to wait, this ultimately increases your chances of positive returns.
Growth investing
Growth investing is a way of implementing the buy low, sell high strategy. Growth investing involves investing in growth shares. These are often shares in a new or small company, which you expect to increase in value. Your aim is to sell the shares for a higher price than you bought them.
It’s a strategy that requires time and knowledge, as you must thoroughly research the company and the sector concerned. At the same time, you need to keep a close eye on the share prices. Once again, you cannot predict the future. Even a successful company can go bust.
Dividend investing
Dividend investing is a buy and hold strategy. You invest in shares of companies that regularly pay dividend (part of the profits) to their shareholders. Every quarter or every year, for example. You hang on to the shares for as long as possible, in order to receive regular dividend and grow your return.
If you then opt to reinvest the dividend, you’ll benefit from a return on your return.
What’s right for me?
The investment strategy you should choose depends on your situation. What is your budget? Are you an active or a passive investor? Do you want to run a high or a low risk? We have an investment guide to help you understand the various investment options, the risks, and the choices open to you.
Investing involves risks
Investing involves risks. You could lose (some of) the money you invested. If you are going to invest, it is important that you are aware of this. Invest with money you can spare. Read more about the risks associated with investments.