The essentials
- Long-term approaches such as buy and hold rely on time and low costs rather than timing.
- Active strategies such as momentum or swing trading need rules, discipline and more time.
- After costs, most active approaches have struggled to beat simple index investing.
Investing approaches
1. Buy and hold
Buy a diversified set of investments and hold them for years, rebalancing occasionally. Strength: low cost and little time needed. Weakness: requires sitting through deep market falls.
2. Regular investing (dollar-cost averaging)
Invest a fixed amount at regular intervals, such as monthly. You buy more units when prices are low and fewer when they are high. Strength: removes the question of timing and builds a habit. Weakness: if markets rise steadily, investing a lump sum at once would have done better on average.
3. Dividend growth
Focus on companies with a record of rising dividends. See dividend investing basics. Weakness: can concentrate a portfolio in certain sectors.
Trading approaches
4. Momentum
Buy shares that have risen strongly over recent months, on the idea that trends persist. Weakness: momentum can reverse suddenly, and frequent turnover raises costs.
5. Swing trading
Hold positions for days or weeks to capture price swings, often using candlestick charts and support and resistance levels. Weakness: needs time, strict risk limits and a way to measure results after costs.
Side by side
| Approach | Time needed | Costs | Main risk |
|---|---|---|---|
| Buy and hold | Low | Low | Market falls |
| Regular investing | Low | Low | Market falls |
| Dividend growth | Medium | Low to medium | Sector concentration, dividend cuts |
| Momentum | Medium to high | Medium to high | Sharp reversals |
| Swing trading | High | High | Frequent losses, overtrading |
Whatever you choose
- Write down the rules before you start.
- Decide how much any single position can lose; see the position size calculator.
- Measure results after all fees.
This page describes approaches; it is not a recommendation. Past performance does not predict future returns.
Reader questions
Which strategy is best for beginners?
There is no universal answer. Many beginners start with simple, low-cost regular investing in diversified funds and learn from there. This is general information, not advice.
Is it better to invest a lump sum or monthly?
Historically, investing a lump sum immediately has more often produced higher returns because markets have tended to rise, but regular investing reduces regret and timing risk.