- 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
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”?
- 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 StrategiesLet’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.
Beginner to Advanced Investing StrategiesCompartmentalizing 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 Simplest Investing StrategyThis first investing strategy is all about asset allocation into stock and bond index funds. I call this the Cocktail napkin because it is so easy it will fit on a cocktail napkin. 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%
- Bull markets
- Economic expansions
- Long time frames, like two or more decades
- Periods of low inflation
The Dinner Napkin Investing StrategyThis 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
- US Stocks – S&P 500 – 35%
- International Stocks – 20%
- Bonds Index – Short Term – 15%
- Bond Index – Long Term – 15%
- Commodity Index – 15%
The Notebook Paper Investing StrategyIt 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 StrategyThis level is not based on following investing templates. Instead, it represents how investing used to be done, from good ole researching and buying stocks and bonds based on evaluation and analysis. This strategy conjures 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 StrategyForget 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 analysis 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. Read my related posts How Much to Keep in Money Markets | 15 Strategies and see an example in All Weather Portfolio Pros and Cons.
The “Being” Investing StrategyBeing 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 SummaryAll 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?
The information on this website is for education only and is not to be construed as personal financial advice.