What You Need to Know About Investing Strategies

There’s countless ways to categorize investing strategies. But we’re reimagining these from the investor’s POV. The only principle separating strategies into two buckets is this: is the investor required to perform a different action each month? The answer to this classifies all strategies as either Steady or Energized strategies.

There are mainly 2 basic principles that are followed for any strategy design. The one in which the assets list/allocation stays the same – Steady, the one in which asset list may change every month, depending on rules – Energized.

What is a Steady strategy?

One that doesn’t shift month-to-month and just stays…steady. This type of strategy requires rarely any rebalancing on your part. When you first buy into a Steady strategy, let’s say you split your investments equally into stock A and stock B. Every time that you choose to make more investments using this strategy, you will perform the same action: split your new investments equally into stock A and stock B. Rinse and repeat.

What works and what doesn’t?

These types of strategies are easy to follow and let you take a hands-off approach. Allocations never change, so you essentially buy and hold. You’re also likely not going to sell your investments for a long, long time, so taxation on capital gains are a far-off concern.

But there are downsides: since the allocations never change, you could see bigger drawdowns in bear markets. These strategies provide slow albeit steady growth, but do not respond to changing market conditions.

Examples of Steady strategies: 60/40 Stock and Bonds, All Weather/All Season, Golden Butterfly, Permanent Portfolio

What is an Energized strategy?

More advanced than Steady strategies, a unique set of rules governs Energized types of strategies. Based on the shifting momentum of stocks and ETFs, an Energized strategy may require you to shift your investments into assets with higher momentum. Quite like riding a wave, you sell assets that are on the decline while buying assets that are on the up. New investments too must be made following the momentum rules of whichever Energized strategy you choose to follow. 

Let’s use Basic Sector Rotation as an example of this type of strategy. On the first of every month, momentum trends of 12 sectors are checked. The sector with the best momentum score is picked and 100% of the investor’s investments are to be moved to the sector. Even when you choose to invest in the middle of the month, you will follow the same allocation that you received at the start of the month.. 

What works and what doesn’t?

This strategy is great if you’re looking for one that is responsive to market changes. Because it considers market performance and moves you to investments that are poised to do well, you will likely see lower drawdowns and higher gains.

But these strategies require you to make tough decisions. Since you’re adjusting your portfolio just once a month, you may sometimes sell your assets at a loss when following such a strategy. When you do sell at a profit, you could be subject to short-term capital gain taxes.

Strategies: shüts Atom, Accelerated Dual Momentum, Traditional Dual Momentum, Papa Bear Portfolio, Basic Sector Rotation

How do you know which type is right for you?

Emotional investing is usually a bad idea. The best-for-you investing strategy may not be one you choose for yourself. shüts wealth’s risk profile assessment is backed by data and helps you pick the strategy that works for your goals. Sign up for free  access today.