Does everything you need to know about investing really fit onto one side of a cocktail napkin as touted by more than one wildly famous financial author?
Well, the answer depends on:
- Your personal wealth plan
- How long you have to save and invest
- Your net worth
- How much money you need to retire comfortably
- How much time you want to spend on investing
- How much risk you’re okay taking
- And…the economy and financial markets
So, maybe, but probably not.
And as always here at Retire Certain, there is never a one size fits all plan, cookie cutter for wealth because everyone’s needs, skills and desires are different!
Don’t be discouraged. There are many levels of investing, ranging from beginning investment strategies to advanced investing strategies that are easy to implement with today’s technology and information, or by hiring the right wealth manager.
You’re certain to find the perfect investing strategy for you from the 6 strategies below.
Whom to Trust?
Every financial expert is convinced their own investing strategy, whether simple or advanced, is the best. And they’re good at convincing others that their strategy is the best, too.
One of the hardest things about investing (or anything in life!) is knowing who to listen to and whose advice to follow.
One respected investing expert swears you need to own commodities, while a financial blogger with a cult like following is on PBS declaring that all you need to do is buy stock and bond index funds following the cocktail napkin protocol. (He’s on TV so he must be right!)
This can be super confusing unless you understand your many investing options.
- What are the various levels of investing, from beginner basic to advanced strategies?
- And what’s the minimum required of you to keep your money safe while growing it?
- And who’s right from the thousands of “financial experts”?
It’s no wonder many investors avoid investing altogether or blindly hand their hard earned savings to a financial advisor without knowing anything about investing (which can lead to hiring the wrong advisor or worse).
The goal of this post is to make sense of the various levels of investing, from beginner to advanced investing strategies, to clarify:
- If investing really can be as simple as the cocktail napkin approach of buying 2 index funds, one in stocks and the other bonds
- If you need alternative investments like real estate, international stocks, or gold
- If you need to make changes to your investment portfolio as the economy changes
- If you need or want to hire or keep a financial advisor
- The different levels of investing so you can pick where you are now and where you want to be in the future
Big Takeaways on the Various Investing Strategies
Let’s begin by clarifying the following points about the different levels of investing strategies:
- There is no right or wrong complexity, or level, of investing. In other words, the simplest investing strategy can work. And advanced investing strategies can work. But factors way beyond our control affect what works best, and when, as you’ll see ahead so you can’t make unedutated assumptions.
- Financial advisors, wealth managers, and other investing experts generally are committed to one method, or level, of investing because it is what they know, do, or sell.
- This is key: The overall financial markets and the economy strongly affect how a simple investing strategy performs (the cocktail approach) versus a more tactical advanced investing strategy, as all you’ll see below.
- The best investing strategy for you is based on your personal goals, your desired lifestyle, your level of wealth, and your interests, not what any one financial expert is preaching. With this insight, you can weave the best investment strategies into your life in a way that makes you happy and successful as an investor without being a slave to your money.
As a financial coach and longtime investor, I see there are many different levels of investing, and this is where people get tripped up about how to invest. This is what inspired me to write this post.
I’ve been very fortunate to have implemented beginner investing strategies as well as the most advanced investing strategies over the past 4 decades, which has included both good and horrific economic times.
But I’ve worked with (hired) financial advisors and even hedge funds with more complex strategies, as well as personally implementing simple index fund strategies, and also selecting individual securities.
In other words, I’m not married to any one strategy because I don’t have to be. As a financial coach, I get to be unbiased because I don’t sell financial advisory services and I don’t work for a financial firm.
♦ Wealth Management Tip ♦ Always learn from an unbiased source because every financial advisory service or product will naturally have a bias.
Here is our investing goal now, and I think it is the goal of most investors: An investing strategy that grows our wealth with the least amount of risk.
And some people want to do this with the least amount of effort while others, like us, immerse themselves into investing once the cloud of confusion clears.
So let’s look at the various levels of different investing strategies next because I think almost everyone wants to become a betetr investor.
Beginner to Advanced Investing Strategies
Compartmentalizing brings clarity for us humans. That’s why the first question we ask when someone announces the birth of a baby is whether it’s a boy or a girl!
So, below I have compartmentalized and explained the various levels of investing ranging from basic beginner to advanced investing strategies to make it easier to follow.
The anaolgy I use is something we can all relate to, ranging from cocktail napkins to our entire being.
The Cocktail Napkin Investing Strategy
This first investing strategy is all about asset allocation into stock and bond index funds.
It’s the easiest, most elementary way to invest. It’s the cocktail napkin approach at it’s finest.
Remember, asset allocation just means you allocate (complicated sounding word for “put”) your money into different types of investments, such as stocks and bonds.
♦ Investing Tip ♦ There are free, simple asset allocation templates that tell you what percentage to put in each type of investment, based on your age and desired level of risk, so don’t be intimidated by this.
But don’t let the word “template” fool you. These templates are used by everyone ranging from beginner investors to well-paid wealth managers and financial advisors.
Here’s an example of this basic investing strategy:
- Stocks Index Fund – 70%
- Bond Index Fund – 30%
While this is the most basic, beginner-level investing strategy, it’s important to note that this strategy can work brilliantly during:
- Bull markets
- Economic expansions
- Long time frames, like two or more decades
- Periods of low inflation
If you want to read more about this, click to my post How to Understand Your Investments.
Believe it or not, this is the most popular way to invest today. It’s so simple, and we’re now a society that loves fast and easy, so this investing strategy sure satisfies that demand.
There is almost a fanatical following of this basic investing strategy, especially since it has worked so well in bull markets, expanding economies and low interest rates with almost no effort.
Remember, bull markets and expanding economies are the ideal scenario for this beginner level investing strategy to work well.
Be aware that everyone loves this simple strategy after long periods of economic expansion because they built wealth from investing so easily.
Don’t forget “after tax” returns. Taxes are an important factor with any investing strategy since they deplete returns.
So, note that even using beginner strategies like this, most investors take advantage of tax-advantaged accounts, such as 401K’s and IRA’s which adds a tiny level of complexity, but not much.
This strategy became popular when investors could get income from bonds and growth from stocks but the income from bonds became less worthwhile when interest rates declined. Read more about this in my post Difference Between Cash Flow and Capital Gains.
But let’s say you’re ready to take your investing to the next level. What then?
The Dinner Napkin Investing Strategy
This model still uses simple asset allocation but also invests into one or more categories of stocks and bonds with index funds. Investors may even venture into a commodity fund.
Examples may be adding investments in a(n):
- Emerging markets fund
- Technology fund
- International stock fund
- Dividend stock fund
- Municipal bond fund
- Small-cap stock fund
- Commodity fund
An typical investment portfolio at this level may look like this:
- US Stocks – S&P 500 – 35%
- International Stocks – 20%
- Bonds Index – Short Term – 15%
- Bond Index – Long Term – 15%
- Commodity Index – 15%
This is a slightly more advanced investing strategy than the first one which is still very easy to implement with index type funds.
Templates for investing at this level making this strategy simple to implement for investors who understand it.
♦ Wealth Management Tip ♦ Many of these templates even have decades of past performance history so you can see how they performed during bull markets, bear markets, or years of falling or rising interest rates, for example.
This information is priceless in helping you control risk while increasing returns, the major goal of most smart investors. Read my related post How to Manage Risk in the Stock Market.
Ready to see the next level of investing?
The Notebook Paper Investing Strategy
It seems that most investors wanting to take their investing to the next level begin with adding real estate to their investments so I’ll put this strategy next.
It will take more space to plan out than a napkin provides, but we can sure use a piece of notebook paper for this investing strategy.
This strategy simply adds real estate to the Cocktail or Dinner Napkin strategy.
Remember, too, that real estate investing can be done by owning property or done by simply buying publicly traded REIT’s (Real Estate Investment Trusts) in your stock account.
If an investor is buying index funds and REIT’s, this is still a beginner to medium investing strategy due to the ease of implementation. While it’s easy to implement, although choosing the best REIT’s at any given time takes skill. (Never fear, there are excellent resources for this, as I use and share with my money coaching clients.)
For an investor buying actual properties instead of REIT’s, this is a more advanced investing strategy due to the skill and time it takes to select, buy and manage properties. Been there and done that, and there was absolutely a learning curve with some pain involved.
The next level of investing is great for analysis geeks.
♦ Wealth Management Tip ♦ Adding real estate to investment portfolios can be a good inflation hedge. Read more in my post How To Account For Inflation In Retirement Planning.
The Notebook Investing Strategy
This level is not based on following investing templates. Intead, it represents how investing used to be done, from good ole researching and buying stocks and bonds based on evaluation and analysis.
This strategy conjores up excitement among many investors hoping to find the next Apple stock.
I fondly recall my dad researching companies back in the 1970’s and 1980’s by reading Value Line at the library during his lunch hour.
Now, this game has changed due to the availability of early stage funding for companies, but there is still money to be made from small company stocks. Nevertheless, it’s estimated that the overall stock market drives the value of about 75% of stocks taking down even the best stock selections.
The investor at this level is doing some serious investment analysis to create a diversified portfolio of individual stocks and bonds. Hence, entire notebooks will be needed for this investing strategy.
Note that it’s much easier to research and buy individual stocks than bonds, so most investors buy individual stocks and then buy index funds for their bonds.
This is an advanced investing strategy simply due to the time and skill it takes to analyze investments.
Some wealth managers and financial advisors research individual securities when investing for their clients, but most hire others who do this, usually through institutional funds.
If analysis isn’t your thing, or you want a little more risk control while gaining some upside potential, you may be interested in the next level.
The White Board Investing Strategy
Forget the napkins and notebooks, we’re going to need a big whiteboard to plan this investing strategy, tactical investing.
With tactical investing, investors have ditched the well known asset allocation templates, and begun making investments based on valuations and potential opportunities capitalizing on what’s happening in the financial markets or the economy.
This strategy is sort of like stocking up on cashmere sweaters in April when you can get more for your money.
At this level, an investor may have noticed, for example, that the stock market has been increasing in value for ten years and stocks have gotten expensive.
As such, the investor shifts at least some of her money out of stocks and into other assets that appear cheaper, such as bonds, or maybe even money markets, to have funds for later when investments are cheaper. (Read my related post How Much to Keep in Money Market Accounts with 15 Factors to consider.)
Or this investor may see that real estate is undervalued and increase his holdings in REIT’s (Real Estate Investment Trusts), for example.
Or an investor may buy a gold index fund or ETF (Exchange Traded Fund) due to inflation concerns.
While this sounds complicated, and we do need a good sized whiteboard to sketch it out, it’s still easy to invest at this level since it only requires buying index funds.
The knowledge it takes, however, to invest tactically vs using an asset allocation template is much higher.
Think of how powerful this strategy is vs just sticking 60% of your money into stocks and 40% into bonds, regardless of what’s happening in the economy that will affect the value of your investments.
Don’t worry. Tactical investing can be done by investors themselves without having to be an economist or anaylysis geek. In fact, many of the top financial experts have designed tactical investing strategies that are used by wealth managers and financial advisors to invest for their clients.
And many of these same strategies are available to individual investors as I teach in my programs.
See my related post Should You Manage Your Own Money (with Time and Cost Comparisons)?
For investors who want to be more hands off, you can even hire financial firms that implement these strategies for you.
In other words, there are even templates for tactical investing that are used by individual investors as well as sophisticated wealth managers.
But, again, skill is required in understanding and choosing the best template based on the past data, and the current and expected economic times based on your investing goals and chosen risk level.
Without getting too geeky, let me add that some tactical investing strategies are done with technical analysis (using charts) alone, with fundamental analysis based on the economy and accounting, or both.
The “Being” Investing Strategy
Being an investor is the highest level and you’ll see why.
At this level, investors may venture into any one or more of the following, in addition to the investments above in the less advanced investing strategies:
An investor at this level is paying attention to the financial news on a daily or weekly basis.
For example, he may be taking advantage of high or low-interest rates instead of following the “all debt is bad philosophy. (Read my related post Owning a Business Vs Real Estate or Start a Business or Invest in Stocks: Which Is Better?)
At this level, investors become strategic. They are implementing alternative wealth strategies so they may buy assets or use entity structures with tax advantages, for example, in addition to tax-favorable accounts like 401K’s and IRA’s.
Sound like a full time job? Most investors don’t do all these investing methods.
At this level, investors find out what they are good at and do more of that to achieve their financial goals.
Also, many high net worth investors hire wealth managers to invest part or all of their wealth for them at this level. But at the level of Being an investor, they know how to hire, evaluate and manage the financial experts they hire.
Or, they invest in some types of assets, such as real estate, or small business, and hire financial advisors to invest in paper assets like stocks, bonds, and commodities for them.
Advanced investing strategies at this level take time and attention to manage. Being an investor can be ideal for retirees who want to grow both their mind and their money. Read more in my post Fear of Retirement Boredom.
This level is perfect for investors who find investing fulfilling, fascinating, and rewarding.
Note that advanced investing strategies don’t require that you be wealthy, but it’s what most wealthy people do.
Investing at this level does require a drive and strong passion for investing.
And it requires thinking and acting differently than almost everyone else.
Read my related post on 12 Slightly Alternative Retirement Investment Strategies.
Investing Strategy Summary
All experts argue that their investment strategy is the best. As you saw, levels of complexity range from fitting onto a cocktail napkin to tactical investing strategies with diversified alternative investments.
Note that once you’ve learned more advanced investing strategies you can’t go back to less advanced knowledge.
Investing with more advanced strategies is just like when you breakthrough with a new skill, like golf, or snow skiing, you can’t go back to the way you were before.
You know more.
And that knowledge changes you. And your results improve because of that knowledge.
There is a striving and way of being that develops at the level of Being an investor.
What kind of investor do you want to be?
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