A strategy can give you a sense of direction in your investing journey. This can be especially helpful when you’re new to investing and feel overwhelmed with your choices.
You can simplify decisions on when, where, and how to invest your money by following a certain method.
While there’s no perfect strategy that works for everyone (or works all the time), some can be easier to follow than others. You may want to start with these 3 investing strategies that beginners can consider.
1. Peso-cost averaging
Peso-cost averaging involves investing a fixed amount of money at regular intervals, no matter how the market is doing.
Whether the value of the investment goes up or down, you keep adding the same amount at a set schedule.
How does it work?
Let’s say you invest P1,000 every month in a pooled fund like a Unit Investment Trust Fund (UITF).
In January, the Net Asset Value Per Unit (NAVPU) is 0.5, and so P1,000 gets you 2,000 units.
In February, the NAVPU rises to 0.8, so you only buy 1,250 units.
In March, the NAVPU drops to 0.4, so your P1,000 is good for 2,500 units.
With this strategy, you buy more units when prices are low and fewer units when prices are high. The goal is to end up with a low average price per unit over time.
This method is typically used for investing in stocks and managed funds.
Why is it good for beginners?
Through PCA, you reduce market timing risk. This means you can avoid investing a lot of money when prices are too high.
PCA helps you minimize potential losses and maximize possible returns even with a passive approach. It’s emotionally easier because there’s less pressure to time the market perfectly.
It also makes investing relatively affordable since you don’t have to invest a huge amount all at once.
Instead, you can start small and stay consistent, allowing you to form a disciplined investing habit.
2. Value averaging
Value averaging is like PCA, but with a key difference. You’ll still invest at regular intervals, but you won’t be putting in the same amount every time.
Instead, you’ll adjust how much you’ll invest based on how your investment is performing.
How does it work?
Like the example above, imagine you’re investing in a pooled fund. Your goal is to grow the total value of your investments by P1,000 each month.
In January, you’ll invest P1,000.
In February, your goal is to reach P2,000 and the value of your initial investment has grown to P1,100.
This means you’ll only need to invest P900 to hit your target amount for the month.
In March, your goal is to reach P3,000 but the value of your total investments dropped to P1,900. You must put in P1,100 to achieve your monthly goal.
Value averaging is a more deliberate way of buying units or shares at lower prices compared to PCA. Instead of naturally buying more shares when prices go down, you’ll intentionally increase your investment amount when there’s a dip.
Why is it good for beginners?
Value averaging allows you to slightly adjust your approach as the market changes while still sticking to a regular schedule. You can be more hands-on with investing, but you won’t need to react to changes quickly.
Keep in mind, however, that you may need to put in a lot of money when prices drop significantly. Your budget should be flexible enough for you to maintain this strategy.
3. Buy and hold
This is 1 of the simplest investing approaches. All you need to do is invest in a product and hold on to it for a long time, usually years or decades.
You won’t try to sell immediately after prices go up or down, and you won’t panic when there’s a market downturn. That’s because you trust that your investment will grow in value over time.
How does it work?
You’ll invest in your chosen company or product, ideally one with a good track record and growth prospects. Then, you’ll stay invested for years without being too concerned about short-term price changes.
You’ll only sell once you’ve reached your goal or if there’s a good reason to take your money out.
Why is it good for beginners?
Buy and hold might be the way to go if you can stay invested for years and won’t need the money right away. This gives you a better potential to benefit from the power of compounding over time.
Like PCA, this strategy keeps you from worrying about short-term price fluctuations. You’ll avoid the stress of trying to time the market, which can be challenging for both new and experienced investors.
Keep in mind that you can explore more than 1 strategy before settling on a method to follow. You may even want to combine different strategies if that works for you, like practicing PCA and buy and hold at the same time.
The key is to pick a strategy that allows you to stay consistent and fits your goals and situation.
