Here is how I Invest! Diversify, Periodic purchases, Circle of competence, Dividend Growth and Carpet bombing.
1) Diversify
By order of Importance, Diversify By: Time, Company, Sector, RiskTime: Never buy or sell at one time, spread them out over time. Use "Periodic Purchases" almost exclusively when investing. Don't wait for the perfect price to sell, plan it and break it out over time.
Company: Never let one company be more than 5% of your total portfolio. Also having one company in a sector is too risky so if you don't or can't find enough stocks (that your really understand) to invest in, "don't invest in that Company" or invest just 5% in the company and the rest in ETFs that will spread out your company exposure.
Sector: Limit the amount invested in each sector, If you don't have enough sectors in your "Circle of competence" invest in ETFs that will spread out your sector exposure.
Risk: Don't pick a single risk allocation for all investments. People say be risky when your young and be conservative when your retired. That's not required, and not advisable. People who tell you to be risk when your young will also tell you to buy a little bonds just incase. In short alway be conservative and risky, but understand where your risk is and limit it as needed.
2) Periodic Purchases
Don't buy a stock all at one time. Instead invest your money over time, have short and long term schedules for investing. I decide how much I want to Invest in a year, for example right now I have $2,000 to invest, so divided by 52 Mondays in a year and we get $40. So I buy $40 every Monday. Currently we are near the end of a bull run so my long term plan is to wait for then next recession and then rotate at least 25% of my Crowdfunding portfolio into the my existing stock market positions. When I start the rotation we will be in a recession, and some might call that catching a falling knife but that rotation will be spread out over a long enough period of time it won't matter. I call it "Carpet bombing". Until then If the market goes up I will invest, if the market goes down I will invest, if the market stays the same I will invest. when we are record highs I will invest, when we are in a recession I will invest.3) Circle of competence
Invest in what you already know, if you don't know about energy don't buy it, If you don't know about Target dont buy it. I love Target, I shop at Target, my wife shops at Target, we shop at Targets competitors and I understand the sector. I don't own Philip Morris, Walmart, Disney, etc. I might if I looked into them, but I don't have time. Evenly I will learn more and increase my circle of competence and probably invest in a little Disney, but right now it would be dumb money and I don't want dub money. I do own REIT's like SPG, CCI, LAND, NRZ, MAIN, GOLD, T, and other things I understand and read about regularly.
4) Dividend Growth
Invest in stocks that have a proven track record of raising dividends and that have the ability to continue to raise dividends in the future. Companies that have track records of returning greater and greater dividends are expertly managed, they can still have issues or fall on hard times but in general require a better control and management than a stock that just IPO'd. If AT&T cuts it dividend I will stop investing in it and I will sell off my position, if the position is large I will do it with periodic sells.
Requiring dividend Growth shouldn't be applied to some investments like ETF or REIT's. For example a REIT is required to pay out a specific amount of income to be a REIT, this prevents the REIT from investing, keeping the cash or scheduling out measured regular increase to the dividends. An ETF or a REIT having a long proven growth record is not as important as ability to execute there stated objective. As an example the SPHD "seeks to measure the performance of the 30 least volatile high-dividend-yielding stocks", this may cause the yield to be more or less depending on what stocks come in and out of the index at any given time, but it's still a good way to diversify as protect against volatility.
5) Carpet bombing
This might be is the only concept that is mine (however i'm sure I didn't invest it). If the market goes down, I like to double my investment. So for example right now I'm investing $40 a week, this Monday I invested $40. Let's say that on Tuesday the market goes down 5%. On wednesday I will invest another $40. If the market is still down 5% on the following Monday, I will buy $80 instead of $40 that week, and I will keep buying $80 until the market starts appreciating measurably. Now if the Market goes down another 5%, so it's down a total of 10%. I will buy an extra $40 for a total of $120 a week. and so we get this...Normal market 1x $40 per week
Market -5%: 2x $80 per week
Market -10%: 3x $120 per week
Market -15%: 4x $160 per week
Market -20%: 5x $200 per week
Market -25%: 6x $240 per week
Market -30%: 7x $280 per week
Market -35%: 8x $320 per week
Using carpet bombing will lower your future cost basis on stock your making periodic purchases on and plan to hold for long periods of time.
The average Correction is 71 days and will be -13% in market value, so just using those numbers 10 weeks at 3x would be $800 more than I would have normally invested. It will actually be less because it wont drop -13% day one and go up 13% on day 71.
The average recession lasts 13 months and on average will be -30% in market value, so again using those numbers at 7x I would invest an extra $13k once again it won't actually be those numbers because it will go down gradually and come up gradually. In both examples it wildly over estimates the amount added to the base investment but you can also see these over estimated numbers are relatively small additions to the portfolio when you look at it over even a 2-5 year period.
If we are unlucky enough to see the market go down -35% I'm ready and have a planned rotation that can supply the money needed to make it work in the long run. I used this strategy last recession and the result was I was able to buy my first house while others were complaining about there market loses. It was the single biggest swing in my income and Net worth I have ever experienced. I stopped telling people about my success because people would say I was lucky and some people were (still are) rude to me. I remember as the market was falling I was putting half my paycheck in the stock market each month, I mean I had people calling me stupid. There was even a period of time when I was investing twice what I earned each month stocks and funds. I had a great job during the recession that guaranteed me I wouldn't be laid off (they laid me off a couple weeks later). But it wasn't lucky, being jobless at the beginning of a recession and buying a house about a year later. I spend years planning my investments, it took years to execute, and I spent years with a living standard way below my peers. That hardly seems like luck to me. It reminds of what that said to me 2005-6, I was always talking about saving up to buy a house, and going to open houses and complaining about how I couldn't afford anything. My boss told me he had lots of friends who couldn't afford to buy a house used a "bank" and lied about what they made and just got a "loan", he basically put me down in front of my peers (something he seemed to enjoy). I told him I'm not buying something I can't afford, even if a "bank" gives me the money. Well he felt I was dumb for not taking the opportunity. If I had I probably would have lost my house when he laid me off and had the single biggest swing in my income and Net worth I have ever experienced in the wrong direction.
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