The Most Popular Investment Strategies for Long-term Profits

2022-04-11, 02:54

Dollar-cost Averaging: So what is dollar-cost averaging? It’s basically about putting in small, consistent investments every week, fortnight or month rather than putting in large sums of money at once into a particular asset when it seems like a good opportunity to do so. Over a long period of time, it is easier for an asset to appreciate with frequent and small purchases than just buying when - you believe - the market is low.

Value Averaging: Similar to dollar-cost averaging - the goal is to keep a consistent investment flow regardless of market prices, but invest more when the market falls and less when the market is surging to take advantage of buy opportunities.

Dividend Investing: Dividend investing consists of choosing to invest in companies that pay out frequent rewards to their stockholders, which are called dividends. The closest thing we have to dividends in crypto is staking, liquidity pools and yield farming.

Growth Investing: The formula behind it is quite basic: to frequently invest in projects that are growing at a fast rate and seem like they will continue to do so in the medium to long term. As a parallel to investing in cryptocurrencies, it can be related to several factors: what is their current market cap? did the project fulfil all their past roadmaps goals on time? What about the number of users in the network, have they been steadily growing? Is the community active and growing across all social media? And what are the upcoming projects that they have at hand?

Whether you’re investing in cryptocurrencies, bonds, stocks, commodities and what have you, having a strategy set in place is extremely important to ensure that your investments will thrive and reign in consistent profits in the long run. As much as it is appealing to simply invest in the products and companies that you’re most interested in at all times, that is not the wisest path from a risk-averse perspective. Diversification is not the only key, but consistency and clarity are also extremely fundamental.

With that in mind, this article gives a summary that goes through the most popular investment strategies that can be implemented by investors of any level of experience and knowledge. Keep in mind that these strategies are not and should not be exclusive; they can be combined in several ways to better serve your investor profile and return goals.

Dollar-Cost Averaging

Dollar-cost averaging is one of, if not the simplest, investment strategies someone can partake in that has been proved to provide consistently better returns than investing without a plan ahead. It is also one that is often addressed in the crypto media due to its very simplicity.

So what is dollar-cost averaging? It’s basically about putting in small, consistent investments every week, fortnight or month rather than putting in large sums of money at once into a particular asset when it seems like a good opportunity to do so. The rationale behind this method is very straightforward: over a long period of time, it is easier for an asset to appreciate with frequent and small purchases than just buying when - you believe - the market is low.

Source: Medium

The image above provides a very simple example of dollar-cost averaging. Let’s say over a 1 year period, Investor A invested ten thousand dollars into bitcoin bought in three separate chunks: three thousand once when the market was low, five thousand when the market was very high and bitcoin was hitting new highs, and two thousand when the market had just experienced a major correction. On average, their cost per investment was actually higher than Investor B, who spent about 800 dollars every single month, regardless of price. The consistency made his average investment cost lower than Investor A and therefore, resulted in higher profits.

But the main advantage of dollar-cost averaging is actually having peace of mind. When you’re sticking to a fixed strategy that involves buying the same assets at any price, every month, you’re not worried about the market fluctuating, crashes or what breaking news means for the global markets. You’re in it for the long haul, and believe the asset will appreciate as the years go by. It is a simple, yet powerful tool to create consistency and discipline in your investments.

Value Averaging

Value averaging takes a very similar approach to dollar-cost averaging, but with more factors taken into consideration and the need for a close eye in the market. In this case, the goal is to keep a consistent investment flow but invest more when the market falls and invest less when the market is surging. Using the previous example, instead of investor B putting the same amount into bitcoin every single month regardless of price, they could keep track of market hikes and crashes, as corrections are historically good buying opportunities - wheres market spikes are a good signal to remain cautious.

Although both dollar-cost averaging and value averaging reign good results and cement consistency, value averaging takes away the passive aspect of the investment strategy since it requires adopters to always keep an eye on the market to determine how much they’ll be investing in the next week, the month of whichever timeframe they choose.

Dividend Investing

One of the oldest and still most common strategies in the traditional stock market, dividend investing consists of choosing to invest in companies that pay out frequent rewards to their stockholders, which are called dividends. The idea behind it is to create a consistent inflow of investment over many years that in the long run will yield not only high returns from the stock itself, but higher and higher dividend payments that will allow you to live off of those dividends several years in the future once you’re looking to retire.

Source: Stock Mania

The above image gives a brief intro to some of the highest dividend-paying stocks based on their market cap. Have you noticed any similarities that can be applied to the crypto market? That’s because there are, because the closest thing we have of dividends in crypto is staking, liquidity pools and yield farming. Same as with stocks, when looking into investing in different crypto projects it is always useful to check if they provide opportunities for second-layer earnings where you’ll not only make money from the asset appreciating in the long-run, but also from the yield rewards that they pay you. Such a method, combined with either dollar-cost averaging or value averaging, can be an extremely powerful strategy for investments looking into ten, twenty, thirty years in the future.

Growth Investing

Growth investing is for the very active investor, who is always keeping an eye on the market and thoroughly researching the companies or assets that they’re investing in. Although it takes a lot of time and research, the formula behind it is quite basic: to frequently invest in projects that are growing at a fast rate and seem like they will continue to do so in the medium to long term.

As a parallel to investing in cryptocurrencies, it can be related to several factors: what is their current market cap? did the project fulfil all their past roadmaps goals on time? What about the number of users in the network, have they been steadily growing? Is the community active and growing across all social media? And what are the upcoming projects that they have at hand?

Combining the strategies, a simple breakdown

Although the strategies mentioned in this article can be seen as separate, they can also be used together to create the ultimate, yet simple, investment strategy in just a few steps.

Step 1, Growth Investing - Thoroughly research and take your time investigating projects that seem to have a high chance of growth in the long run based on their past results. This could be considered essential for any investment strategy, as there is no good investment without proper research. Prioritize projects that also provide reasonable (not insane) DeFi rewards such as staking.

Step 2, Dollar-cost Averaging coupled with Value Averaging - Invest consistently every month, regardless of price. However, if the upcoming date comes and it's after a market correction, invest more than usual. If the price is hiking too much, invest less than usual.

Step 3, reap benefits and reinvest - Reap benefits from the crypto equivalent of dividends such as staking, and reinsert them into your investments. As time goes on and you’re consistent in your approach, you’ll have created a powerful portfolio with consistent returns. Just remember: do your own research and make sure you are making sensible decisions.

Author: Gate.io Researcher: Victor Bastos
* This article represents only the views of the researcher and does not constitute any investment suggestions.
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