Momentum Investing, aka Relative Strength Investing, is based on the assumption that stocks and bonds are priced correctly and securities currently trending higher will continue to trend higher, while securities trending lower will continue to trend lower. At any given time, there are hundreds of millions of dollars entering the marketplace, momentum investing follows that money upwards and trades securities as soon as they begin to appear weak, thus, avoiding a downward trend. This lowers our risk and increases our return.
What about the old adage, “Buy and hold stocks forever”? Buy and hold is risky. Anyone who bought technology stocks in 2000 had to wait 15 years to break even. And bond investors in 1941? They had to wait 50 years to break even.
What other methods of investing should I be aware of? In addition to Momentum investing, we will also discuss growth stock investing and value investing. TheMomentumEdge.com believes momentum investing is the best method for building long-term wealth.
What is value investing? Value investing involves purchasing beaten-down companies that are temporarily experiencing troubles but seem to have good long-term prospects.
And the drawback to value investing…? The drawback to value investing is that these companies may take years to turn around or they may never turn around at all and eventually go out of business and you may lose 100% of your investment.
What is growth stock investing? Growth stock investing involves buying rapidly growing companies who are expanding their business and services at a high rate of growth.
The drawback to growth investing is…? Growth stocks are vulnerable to a sudden drop in price on any announcement of bad news from the company. They can fluctuate more than value stocks due to their higher valuation levels.
And WHY should I care about how I invest? To protect your valuable investment and earnings on that investment. Gone is the “hold forever” mantra, you must execute trades to protect your capital!
Need help investing? Momentum makes investing fast and easy, just 3 minutes a month gives you peace of mind and control of your financial future.