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You want the best of both worlds. What worlds? All worlds.
You want to participate in the markets as an investor regularly so you can capture the overall upward movement the market offers, but you also want to capitalize when massive downturns hit! So how do you do that? Well, you can use this hack, which I love using!
First, you should invest regularly and with a long term mindset. That’s how I roll, and that is what I recommend. I wrote about it here, here, and here. But with that regularly participation (daily or almost every day), you ride the market down too. This isn’t actually the end of the world. In fact, buying on the way down works out great because you lower your cost basis (the average amount you have bought the stock for). Then when it goes back up to new all time highs, you have better gains. But a real power-move of an add-on hack to that strategy is to “pool” money as the market rises. When it is a bear market, you put two-thirds (67%) of your investing money in. That is, you run your strategy buying great stocks in the way I describe in those links above (buy the stock that is down 5%, got unfairly punished on the day, but has a great company still). But as you ride that bull market up, you set aside one-third (33%) of your investing money in cash. Just let it “pool up” in the account.
Now, there are many investors that will complain about how you are missing out on gains because you are not 100% in stocks during the bull market. But this hack allows you to 1) pounce hard on massive declines during major market crashes, and 2) feel like a stud during those major market crashes that you had a plan for that very moment! The psychology here is great. On the way up with the bull market, you feel great about your moves… and on the way down with the bear market, you feel great about the power moves you’re making.
I did this in January of 2020, and it could not have worked out any better! By February Covid hit and the DJIA was crashing from 29,398 to 19,174! That’s a drop of 10,224, which is an astounding 34.8%!
Does the market springboard back up? Sometimes. But typically it is slow and steady, which is why I like buying stocks that were unfairly punished when the whole market crashes. Having 33% of your money in cash at that crash would have been majorly fruitful. In fact, if you had $4,000 (let’s say you set aside $1000/month to invest) available at the bottom it would be worth $6258 – up an amazing 156% in about 9 months by December of 2020! This would have been happening while your friends were hoping to just get back to where they were before February. Your friends gained almost nothing for the entire year!
So how do you do this?
There are many ways you can pool money. Here are just a few to consider:
- When you decide to invest, perhaps you already have a savings. You could simply move whatever money you were willing to invest over to a broker (who doesn’t charge commissions!) and only permit yourself to invest 67% and hold in cash the remaining 33%. For instance, if you saved up $12,000 and are ready to invest, then go ahead and move it into a commission-free brokerage account and permit yourself to use $8000 of the $12,000 with a steady method like I talk about. That $8000 means you have about $32 per day to invest, or about $150 per week, since there are roughly 250 trading days each year.
- When you decide to invest, perhaps you have used my free eBook “OB’s FRUGAL Workbook” which you get when you join my newsletter. This approach uses a monthly budget and leaves you with $ remaining at the end of each month that can then be invested. Let’s say you have $500 every month that you can invest after doing a great job with OB’s FRUGAL Budget. So you send that $500 over to your commission-free brokerage and permit 67% of it to be available for investing and 33% of it to be held in cash. That means each month you have $335 available to invest (with a steady method that I like to describe) as stocks get unfairly punished during the week. You would let the remaining $165 pool as cash in the account. Over time this pooled cash builds up. In fact, with crashes every 5-10 years the timing is perfect for you! After 7.5 years you would have $14,850 ready to plow into a plunging market.
- After having already decided to invest you find my blog posts and follow The OIC | The OB Invest Club Portfolio/s that suit you and start rocking the market! You aren’t sure what to do with all your gains until you follow The OIC Portfolio/s and see my every move with real-time alerts, whether buying, trimming, or selling! Trimming? What’s trimming? Well, trimming is when you sell some of the stock shares that have soared! Say you had $1000 in NVDA and it soared 200%. Well, you can trim (sell some shares) and capture gains, but let the rest ride! This is the best position to be in because you have a significant position still (say you keep 67% of your shares and sell 33%) but covered you initial investment ($1000) plus you now have added cash from the gains! In this case, you would adjust your distribution once again – 33% in cash and 67% in stocks. You can see how this would apply to either step 1. or 2. easily.
To review, adding this hack to your existing investing strategy is powerful. If you don’t have an existing strategy feel free to follow mine, as I’ve described it in those three links at the beginning of the post. (Then, consider spending a bit to follow my Portfolio/s so you can invest like I do – with confidence and results!) In bull markets that are charging upwards you are grabbing gains and increasing the value of your portfolio. And in a crashing market you can drop significant cash into your already-loved positions when they are down and out! This is the epitome of buying low and selling (or just trimming) high!
Enjoy the add-on hack!
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