People these days (maybe just me) spend hours thinking about investment strategy. Is it worth the time? Lately, the financial crisis has got me thinking about my own investing strategy:
-When is the exact opportune time to invest in our current recession?
-What sector/industry/global region will be best positioned to take advantage of an economic rebound in a few years?
-How should the TED spread, level 3 bank assets, credit default swaps, carry trade, etc. affect my investing choices? (What I mean is, how do these complicated issues affect me, Joe Six Pack?)
These are just a few of my questions, and the list goes on. One thing is for sure, financial “experts” have made convincing arguments for both sides of the story. Even on the same TV channel, one pundit will call for a Dow 30,000 within five years, and another will call for “The Great Depression, Part II,” food rationing included. So, how do we make sense of it all?
Don’t listen to CNBC, and don’t read the Wall Street Journal. While you are at it, ignore Yahoo! Finance too. Ignore charts, P/E ratios, PEG ratios, currency movements. Basically, ignore all of the things you CAN’T control.
What can you control? Your savings. Put aside a set amount of money and do monthly/bi-monthly dollar-cost averaging with low-cost index ETFs. As long as you’re investing horizon is greater than 5-10 years, put your investing on auto-pilot and only make changes if you want to increase/decrease your monthly contribution year-over-year or if you need to sell because of an emergency.
Why this strategy works:
1. You buy more shares when the market is cheap.
2. You buy fewer shares when the market is expensive.
3. You take the emotion and guesswork out of investing.
4. You save time.
Though this strategy lacks the luster of others, history tells us that the indices go up on average around 8% per year (adjusted for inflation). Check out www.sharebuilder.com for more info.