Whats up Profit Zone Gang!
Another week has passed which means I’m bringing you guys more insights on all things Profit. In today’s edition, we’re going to be covering winning investment strategies.
I always get asked which stocks I’m buying or what I think about “Stock ABC” but the thing is, it doesn’t matter which stocks you’re buying if you don’t have a good investing strategy in place.
There are so many ways to invest and the #1 problem I see within beginner investors is that they don’t even know what type of investor they are. So instead of having a set plan, they go ahead and just buy whatever they want or even worse, whatever their friends or family tell them to buy.
While that may work for some, it won’t work for most. Sure investing is for building wealth, but what’s also important is building good habits. The reason I’ve been able to have success in the stock market is because I stick to a very specific investment strategy that allows me to sleep well at night knowing my money is in the right places.
With that being said, there is no one size fits all strategy. Just like a diet, it may work for one person and not the other. So it’s important to “know yourself” (as cliche as that sounds) before you start putting together your portfolio. And if you already have a portfolio, it’s never too late to make some changes.
Let’s go over 3 winning investing strategies that I’m currently using or have used in the past.
The Barbell Strategy
By far my favorite investment strategy and the one I’m currently using now (with a slight modification).
The barbell strategy is an investment concept that suggests that the best way to strike a balance between reward and risk is to invest in the two extremes of high-risk and no-risk assets while avoiding middle-of-the-road choices - Investopedia, Greg McFarlane 2021
The reason I say I use a slight modification is because I do not invest in no-risk assets like treasury bills (GICs in Canada) or any bonds for that matter. Although the barbell strategy is most effective when you combine no risk assets with high risk assets, I’m in a place in my life where I can afford to take on a bit more risk and therefore my “no risk assets” then become index funds and bluechip dividend stocks which of course do carry some risk.
I love this strategy simply because it allows me to participate in the gains (or losses) of extremely volatile high risk investments like crypto and small-cap technology stocks, but also gives me the capital preservation of holding index funds and defensive stocks that have been around for years.
Couch Potato Strategy
The couch potato investment strategy is the laziest of them all, hence the name. This strategy works best when buying low-cost index funds/ETFs that are rebalanced automatically. These funds are usually a mix between US/Canadian equities and bonds, giving the investor a low risk way to diversify their money across a wide range of assets.
Unfortunately, you will most likely not outperform the market as this strategy will only perform the same as the market or slightly underperform because of the management fees you have to pay for investing in a fund.
On the other hand, this strategy is much more manageable for investors who don’t want to be checking the stock market every day of the week. All you have to do as the investor is simply set up auto purchases into a few funds every week and off you go.
In my opinion, if you don’t want to pay the fees that come with hiring a financial advisor who may (or may not) beat the market, the couch potato strategy is a great way to learn more about the market while having complete control of your own money at a fraction of the cost.
If low-risk low-effort boring investing is what you’re looking for, look up “couch potato investing” on google and you’ll find all the information you need. It’s one of the easiest and most effective strategies out there.
Dividend Growth Strategy
I couldn’t possibly mention investment strategies without talking about one of my all time favorites, dividend growth investing. Like I said, I currently implement a barbell strategy but the “no risk” side of my portfolio is made up of mostly dividend growth stocks and index fund ETFs.
Dividend growth investing is not just about investing in companies that have the potential to raise dividends, but also investing in companies that may be undervalued and have some potential upside. As a dividend growth investor you want 2 things:
Income generation from dividend growth
Capital growth from the stock price rising
If you can find companies that offer both, you have yourself a grade-A dividend growth stock.
The best example I can give of a true dividend growth stock right now is Home Depot. This company has been able to pay out dividends for the past 34 years straight and has been raising them since 2013. The stock price has also been hitting all time highs and the company has seen some exponential growth in the past few years. Check out the chart below.
In just 5 years, Home Depots stock price has risen 210%. Not only would the initial value of your investment have gone up by that much, but you would have been collecting rising dividend payments along the way as well. Congratulations to any Home Depot shareholders out there, because this is exactly what dividend growth investing is all about.
It’s 100% okay to implement a modified version of any of these investment strategies. Nothing says you have to follow them exactly step by step. Maybe you can pull a few ideas from the barbell strategy and the couch potato strategy and merge them together to form your own.
Investing isn’t about what everyone else is doing. It’s about making sure your money is growing but not at the expense of your own time or lifestyle. Striking a balance between the urge to make a ton of money but still enjoying your life and doing the things you love to do is so important.
I personally like a more passive investing strategy because it allows me to focus on other things in my life. Some people prefer an active strategy and don’t mind watching the charts or checking their portfolio’s every hour of the day. All that matters is that you choose something that suits your lifestyle.
See you in the next one!
- Alex (The Dividend Dominator)
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