Bankrate lists the different ways to invest as follows:
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Passive investing -- Passive investing has its advantages. For one, it's almost a set-it-and-forget-it strategy. A purely passive strategy would be buying an S&P 500 index fund and then never touching it again.
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Fundamental analysis -- Fundamental analysis involves studying the entire picture of the broad economy, industries within the economy and then individual companies within each industry to assess its financial strength.
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Technical analysis -- Technical analysts use charts to study historical stock prices and trading volume data to gauge investor sentiment as a guide to the prospects of a particular security.
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Market timing -- But even professional traders often use either technical or fundamental analysis to time the market. In addition to studying price and volume data on charts or studying financial statements and the economy, they focus on something called the moving average.
Here's my take on these:
1. As most of you know, I'm an index fund investor. One reason is because they keep costs low (which impacts returns dramatically.) In addition, I've purchased my funds in a way to keep costs as low as possible.
2. I used to use fundamental analysis until I realized it took too much time, effort, knowledge, information, and luck to be successful for me (and for most people for that matter -- that's why people spending their careers doing this usually don't beat the market once costs are taken into account.) The most famous/notable exception to this "rule" is Warren Buffett. And, of course, we all know how he advises people to invest. :-)
3. I have a friend who uses technical analysis -- at least he did until he realized it didn't work (and it was eating him up in fees.)
4. Is "market timing" a viable strategy? Has anyone ever been able to predict the rise and fall of the market in advance over the long term? Sure, people have predicted one or two growth spurts or declines (I could do that much), but who has done it over and over again for years?
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