Dumbbell Investment Technique
Investing in the stock market can be intimidating to some. With so many different stocks and investment options, its hard to know where to start. This is where the dumbbell investment technique can come in handy. This is a simple, yet effective strategy that can help investors create long-term returns without having to monitor the market too closely.
First off, the dumbbell investment technique focusses on using two stocks within one portfolio. By using two stocks instead of one, investors are reducing their risk, as they will not be putting all their eggs in one basket. It is important to select the right stocks in order to ensure that the portfolio is well diversified. This means that the stocks should be in different sectors, or should have different company sizes.
Once the two stocks have been selected, investors need to create two separate portfolios. The first portfolio will focus on the stock that has the highest potential for growth over the long-term. This is the portfolio that will be focused on when it comes to creating returns. The second portfolio will focus on the stock that has the lower potential for growth, but the higher potential for dividend income. This second portfolio is designed to help balance out the portfolio when the stock with higher growth potential is down.
Once the two portfolios have been assigned, investors need to consider the time horizon for the investments. If the time horizon is longer, the percentage of investments in the higher growth potential portfolio should be greater. If the time horizon is shorter, the percentage of investments in the dividend income portfolio should be greater.
Once the time horizon is determined, investors need to decide how to allocate their funds. This can be done through a variety of methods, such as buying shares of the stocks, buying options, or buying futures. Once this decision is made, investors will then need to decide on how often they want to buy and sell their investments. This is known as a rebalance. This can be done on a monthly, quarterly, or annual basis, depending on the investors risk tolerances and goals.
Once the strategies have been decided upon, investors can begin executing their investments. The goal here is to create a balance between short-term and long-term investments. This will ensure that investors will have a greater chance of meeting their goals over time.
The dumbbell investment technique is a great way for investors to diversify their portfolios and minimize their risk. By utilizing two stocks within one portfolio, investors can maximize their long-term returns. Also, by rebalancing the portfolio on a regular basis, investors can ensure that their portfolios remain in line with their goals. If done properly, this technique can help investors to generate high-returns over the long-term.
