Finding The Most Suitable Investing Methodology For Yourself And Stick To It

There are many strategies and investing methodologies, such as growth investing, dividend investing, value investing, all-weather portfolio investing and index (passive) investing.  Undoubtedly, the followers and practitioners of the respective investing methodologies will have their own reasons and biasedness on why their chosen method is 'better' than others, and I respect that.  Many times, due to our individual biasedness, when we prefer a certain methodology over others, we may also end up claiming that our chosen method is superior over others, and at the meantime, failed to notice some loopholes of the preferred method.  Therefore, it is through comparison, argument, justification and debate that we expose and highlight all pros and cons of the various methods, and hopefully we get to learn and improve from there on.

For me personally, based on my character, the way I do things, and the personal data points from the day I started trading and investing in 2009, I concluded that dividend investing suits me best.  I think that understanding yourself and your most suitable investing methodology is crucial for several reasons:

1)     Aligning Investments with Goals and Risk Tolerance

a)     Goals: 

Your investment strategy should reflect your financial goals, such as saving for retirement, buying a home, or funding your child's education.  Knowing yourself helps you set realistic goals and choose investments that align with them.  For me, it is mainly to generate a stream of (stable) income that can cover my expenses for in the near term.  In the longer term, this income stream will help to cover my expenses, with the remainder that can be reinvested to grow my retirement pool as well.  This is currently in the works and hopefully by end of next year my short term goal can be met.

b)     Risk Tolerance: 

Everyone has a different capacity to handle risk.  Some people can tolerate the ups and downs of the stock market, while others may prefer the stability of bonds or real estate.  Understanding your risk tolerance ensures that you invest in assets that won’t cause undue stress or panic during market fluctuations.  After many trials and errors, money-making and money-losing experiences since 2009, I have found the risk tolerance that is optimal for myself and that lies with dividend investing.  Currently I am able to stomach the volatility because even if my portfolio value plunges by 50% or dividends get cut, because my plan involving Barista FIRE can help to cushion any major impact during times of crisis, and my 'survival mode' cashflow will not be affected.

2)     Maximizing Returns

By choosing a methodology that suits your temperament and financial situation, you are more likely to stick with your plan during tough times.  This consistency is often the key to maximizing returns over the long term.  With a plan that I devised in 2017 (which is also the year I concentrate on planning, materializing and executing the dividend investing methodology), I feel less anxious about how the market performs during bad times, and definitely more disciplined in various execution of dollar-cost averaging purchases.  The outcome, I happily see my investment grow with time!

3)     Avoiding Emotional Decision-Making

Emotions like fear and greed can lead to poor investment decisions, such as panic-selling during a market downturn or chasing after a hot stock.  Knowing yourself helps you develop a disciplined approach, reducing the likelihood of making impulsive decisions that could harm your portfolio.  Many times, doing less is doing more.  When I feel that market crashes is here, I will place my orders with the desired buy price during non-trading times, and when market opens, I just close all platforms and let the market do it's job.  There is no need to strive to catch the rock bottom prices.  If the order is filled, I get to buy the shares at desired price.  If the order is not filled, it means that my current shares benefit from the higher share price.

4)     Long-Term Success

Investing is typically a long-term endeavor.  Understanding your personality and financial needs allows you to choose a strategy that you can maintain over the long haul, increasing the likelihood of achieving your financial goals.  Personally from experience, I definitely do much better by doing nothing compared to doing short term buy and sell.

5)     Customization

There is no one-size-fits-all approach to investing.  By understanding yourself, you can customize your investing methodology to fit your unique circumstances, whether that means focusing on passive index funds, active stock picking, or alternative investments like real estate.  For me, its definitely dividend investing, buy, accumulate and keep the shares, while enjoying the dividends along the way.

6)     Peace of Mind

When your investment strategy aligns with your personal values, goals, and risk tolerance, you’ll likely experience greater peace of mind.  This psychological comfort is important, as it helps you stay committed to your investment plan through various market conditions.  As mentioned above, dividend investing is what I am comfortable with, tried and tested.  As such, this allows me to have peaceful sleep at night even if the portfolio were to plunge by 30% or more.

7)     Adaptability

Life circumstances and financial goals change over time.  Understanding yourself allows you to adapt your investing strategy as needed, ensuring that your portfolio remains aligned with your current situation and future aspirations.

I understand that there are many traders and investors out there who doesn't like dividend investing, and believes that dividend investing is inferior to their selected methodology.  However, as I have mentioned in a previous post, it is never because the other methods are inferior, it is just solely because one is unable to appreciate the beauty of other investing methodologies and execute it profitably.  As a dividend investor myself, I admit that I do not know all the technical stuffs involved in other methods.  All I know is to select a great company with solid fundamentals, pay a relatively good dividend with decent dividend yield (preferably between 3% to 7%), have a good dividend-paying history and business are not making a loss.  With these, just collect the shares of these companies and wait for their dividend payout.  

Of course, investing is a long term journey.  At this current juncture, dividend investing is definitely the most suitable methodology for myself.  Will it always stay this way, or will this change as I age and really retire from any form of work in future?  I do not have an answer to that, and it will have to depend on the circumstances at that point in time.  What I suppose I can do is to remain adaptable and flexible.  Sometimes, following your heart may be as important as following your head in investing.  In addition, it may be a good idea to join some support group with like-minded investors, with whom you can share the joys of dividend investing with.  For instance, personally I joined a telegram group with many experts, veterans and many long-time dividend investing persons there.  It is fun participating in the small chats there, especially how happy it is to have consistent dividend income streams coming in every quarter, or even every month.  With such a support group, during times of heightened market volatility, they are great reminders of myself to hold on to quality shares, and even continue to buy these shares at distressed prices to accumulate for better dividend income in the future.  I think being part of these groups do help to a certain extent!  Meanwhile, Barista FIRE, here I come...!