Investing is a diverse range of different strategies and approaches with some investors favoring high-risk strategies and others favoring low-risk strategies and investors of every type favoring different investment assets. What you choose will depend on your personal perspectives, your available knowledge and resources and, of course, your goals.
But overall, once you choose a particular selection of investment strategies, is it better to stick with that original vision or change it over time?
The advantages of sticking to a strategy
These are some of the greatest advantages to picking a strategy and sticking to it:
- Development time. Monetary investments aren’t short-term operations. Most of them are only going to earn you a return if you invest in them consistently over a long period of time. If you constantly revise your investment plan, you’ll never see the full results of any one particular strategy; instead, you’ll see microreturns from a host of different areas. Sticking to a strategy allows you to see that strategy mature as intended, over the course of years, rather than weeks or months.
- Shielding from ups and downs. All investment strategies come with some level of risk, and all strategies are prone to temporary periods of highs and lows. Those extreme periods could last for years, depending on the nature of your investments. If you happen to start a strategy that results in an uncharacteristically low return and you abandon ship, you’ll miss out on the potential highs associated with that same strategy. Staying with a strategy long term shields you from those temporary waves of change.
- Cumulative knowledge and compounding returns. The power of compound interest is one of the most important reasons to stay active in investing, but you might not realize that your knowledge and experience in a specific area of investing could compound over time, as well. The longer you spend on a given strategy, making predictions, trying new approaches and learning from your mistakes, the better you’re going to get at it. If you constantly shift gears, you’ll never become a true master of anything.
The advantages of adapting
There are some important benefits to changing your strategy over time:
- Diversification. If you pursue three different overarching strategies over the course of a 10-year period, you’ll see a return that’s an average of those three strategies. This gives you a high-level opportunity to diversify your portfolio. It may also allow you to evaluate different strategies against one another and select the ones with the highest tendency to pay out.
- New opportunities. If you’re willing to adapt, that means you’re willing to try new approaches and new strategies. This is the only way to introduce yourself to different schools of thought and potentially expose yourself to tactics you wouldn’t have otherwise considered. Think of it as trying on different clothes at a department store; only after experimenting with a few different looks will you have a good idea about what will stick.
- Risk mitigation. Changing your strategy from time to time could also mitigate your risk, to some degree. If you use your nest egg to follow a single investment vision –Â even if it’s grounded in research and relatively safe –Â you’ll still be betting everything you have on only one collection of investment tactics. If those tactics fail to see a return, it would be devastating. Changing tactics occasionally could prevent this.
- Changing circumstances. Of course, the investing world and your personal circumstances rarely stay the same for long. After a year or two, you may find your personal tolerance for risk evolving, or you may end up with more capital than you expected to have. Because of these new, unforeseen factors, you may need to revise your investment strategy.
The bottom line
So is it better to pick a strategy and stick with it, or let it transform over time? On some level, you’ll need a degree of consistency in your investment plan. Without a coherent overarching goal, like making enough money on dividends to retire or using fast trades to be as profitable as possible with every trade, you won’t be able to develop your skills and progress over time. If you don’t allow yourself some room to adapt, your plan could easily end up failing. You’ll need to have some consistent and some adaptive components in your strategy if you want to succeed.
