An investor’s superpower is time, and not timing according to investment guru Rusty Tweed. Successful investors purchase stocks because they are expected to be rewarded over many years or sometimes decades in the form of dividends, share price appreciation, etc. This means you should also take your time when purchasing. The following are three purchasing strategies from Rusty Tweed of TFS Properties that you can use to help lower your risk of price volatility:
Use dollar-cost averaging: It sounds complicated, but it really isn’t. What dollar-cost averaging refers to is investing a certain amount of money at certain regular times, like once a month or once a week. This set amount of money purchases fewer shares when the stock price increases and more shares when the price decreases. However, overall, this evens out your average share price. There are some online stock brokerage firms that allow investors to set automated investing schedules up.
Purchase in thirds: Similar to dollar-cost averaging, this strategy allows you to avoid the morale-busting experience of uneven results from the very start. Divide up the amount of money that you want to invest into thirds. Then choose three different times to purchase shares. It could be at regular intervals (e.g. quarterly or monthly) or it could be based on company events or performance. For example, you may purchase shares before the release of a product and then invest the next third of money if the product is a hit. If it’s not you can invest your remaining money elsewhere.
Invest in “the basket.” If you cannot decide which company in a specific industry is going to be the long-term winner just buy all of them! Purchasing a basket of stocks will relieve the pressure of having to choose “the one.” When you have a stake in all of the major players you won’t miss out when one of them takes off. The gains can be used from the winner to help offset losses elsewhere. The strategy also helps to identify the best company so that you can increase your position if you want.