Common investment methods: what they are and how many there are

There are several options you have to invest in the stock market. Some are simple and others are a bit complicated. Take a look at which investment method would be best for you.

There are three basic investment methods:

  • Buy and store
  • Average costs by weight
  • Market Timing (or trading)

Here you will learn about each of them and why it works.

1. Buy and store

The buy and hold strategy is the purchase of a security and its holding until the end of time (that is, until you want/need to get the money).

This investment method is relatively stress-free, since you will ignore the daily/weekly/monthly ups and downs of the market. This can be done when you have a sum of money that you don’t really need now or later in the future, but only want it from your own hands. The important thing here is that you are not attached to money. If it gets bigger, great! But if you lose, then you should still be fine.

Now, I would like to show you how much money could have been made if we had done a buying and maintaining strategy on these companies. If $100 was invested in 2010, that amount would be now:

  • Facebook Shares: You Now Get $520
  • Apple Stock: Now Earnings $2,400
  • Amazon Stock: Earnings $3,300
  • Tesla Shares: Make a Profit of $11,302

Compared to short-term investments (trading), the buy and hold method does not require you to have many skills. All you have to do is research which stocks have good growth potential in the future, then buy and store for at least a few months or a few years until the stock price is high, you sell it for profit.

With a buying and maintaining strategy, it is best to choose today’s industry giants. Choose the companies that are most likely to outlive you. These are the companies that have a history of expanding into new ways of making money.

2. Average costs by weight

The average cost by weight is a simple, safe and effective way to make money in the stock market. However, it requires more discipline than the buy and hold strategy. Consistency is very important when it comes to this investment method.

The strategy of averaging costs by weight is to invest a fixed amount of money in a good company at fixed intervals, regardless of its price. In this way, you distribute the risk of buying at expensive prices, at the same time take advantage of opportunities at cheap prices.

Here’s an example to show you how it works. Let’s say we decided to invest in Netflix (NFLX) in January 2017. And we set aside $1,000 to invest every six months. This means that every January and July, $1,000 will be used to buy Netflix shares, regardless of the price.

The following table shows Netflix prices, at six-month intervals. In the table below, I would like to point out to you how the number of shares purchased varies with the price per share.

date Netflix price ($ per share) Number of shares purchased * Total number of shares Average share buying price ($)
Jan-17 128th 7.8 7.8 128th
Jul-17 151st 6.6 14.4 138th
Jan-18 205th 4.8 19.2 156th
Jul-18 396th 2.5 9.7 pm 184th
Jan-19 332 3 24.7 70W
Jul-19 377th 2.6 27.3 219th
Jan-20 325th 3 30.3 231st
Jul-20 550 1.8 am 32.1 249th
Jan-21 539th 1.8 am 33.9 265th
Jul-21 536th 1.8 am 35.7 280th

Since you are able to buy more shares when the price is low, the weight of the lower prices is greater. As a result, the average purchase price also falls. This is the magic of the average cost of weight. Buying at fixed intervals, with fixed amounts of money, you take advantage of price fluctuations.

Averaging costs by weight can be a great way to manage investment risk and maintain a consistent investment strategy throughout all market conditions. It is a proven way to invest money at normal intervals (monthly, quarterly, etc.) to achieve long-term investment profits in the stock market.

3. Market timing

Market timing is also known as stock trading. This method of investing means actively looking at the stock market for opportunities to buy at lows and sell at highs.

Market timing requires more skill, time and dedication. At the same time, it is also much more exciting.

If you are willing to check the stock market daily and want excitement, this may be for you. With the timing of the market, you can double your money in a week. But at the same time, the opposite may happen. You could even lose half of your money in that same week if you’re not careful. This race to win and lose is the reason why the stock market is often compared to gambling, which is very complicated and risky. There are more losers than winners.

While the concept of timing the bass and selling to the highs seems simple, it requires a knowledge of science called technical analysis. Technical analysis is a technique in which you look for patterns in stock charts and look for different market indicators. Through the process of trading and learning, you can make money from this tough market.

Above are three different investment methods that investors can use to make money from the stock market. Each has its own characteristic. I hope you can select which one is best for you.

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