Let's speak about savings...Hey guys,
As I've lately taken great interest in publishing my trading ideas here on TradingView,
I want to speak about something that rarely if ever gets spoken about in the trading community, by trading community I mean us goobers on charts who do intra-day, swing, day trading etc... who get sad for not making 10% a month on forex etc...
That is your savings, specifically investing your savings on a long term basis and compound the interest earned by the dividend yields.
Useless to say that I'll be speaking about the S&P 500 and how you can approach it too.
First of all, you can't directly buy the S&P500 that you see here on trading view, as this is an index and in order for you to invest in the performance of the index you need to buy into ETFs, mutual funds, or derivatives like options and futures that are designed to track it.
There are many big funds around, like iShares, Fidelity, Vanguard, Amundi etc...
To be honest the one I personally invest into is the Core S&P 500 USD Acc from iShares that auto compounds the dividends but you really can choose between tens of funds.
The key factors that you must keep into consideration when choosing a fund are these:
- Currency of the fund (what currency is the fund based on)= if it is another country's currency, you'll have to exchange it every time you want to make an entry, amounting to extra commissions and fees that aren't sexy.
- Dividends= if the fund pays out dividends, if it pays it in cash or shares or if it self reinvests them or it doesn't...
- Tax residency of the fund (on which exchange is the Fund/ETF listed on)= important as when it will come to pay your taxes, some funds may have extra taxes due to the residency/exchange.
Now... let's get to the sauce, you have probably heard about DCA (Dollar Cost Average) as it's been rubbed on your face by everyone who never looked at a chart, and that's a valid approach if you are 50, but we spend half of our days on the charts so we want to work based on charts and price, not on time.
My philosophy behind this is that, if our goal is maximizing profit while spreading entries evenly, we should aim to get the best entries, and how could time, which has nothing to do with price, dictate our entries?
It is quite literally putting your finger down randomly on the chart and choosing to enter there.
There is a way easier and more effective approach, and that's basing yourself on price by simply buying the dip.
Yes, I quite literally wrote all of this article just to tell you to buy the dips, but here's a little practical example on why buying the dip performs better than DCA and what values you could look for yourself to try to optimize your entries.
The most basic approach to DCA is to buy a set amount each month, for the sake of the example let's say you would have bought $1000 worth of shares every 30 days starting from Feb/2022, your entries would have been spread out randomly and you would end up with roughly $42.000 today, which would be more if you reinvested all the dividends and profits.
A better approach would be buying each time there is a dip of X percentage in price.
If during the same time we would have bought about 200$ every time price dipped 1.25% we would have made 192 entries and made around $51.000 without compounding interest and dividends, then that would be closer to 55.000 - 60.000.
All of this just by basing ourself on price and not time.
You wouldn't evaluate taste with sounds, or sounds with numbers... so why evaluate numbers with time? Rather stick to what the chart itself does and get the best spread out entries possible, like this not only you would make more money, but have way more entries spread out through the chart for about the same initial capital, which is not bad when you are planning to long term invest.
To wrap it up, my practical example is buying the S&P500 (or another index you like), every time price drops of 1.25% - 1.75% in a single day, and compound interest every time you get a entry. Like this you'll set yourself an long term investment fund that will grow exponentially through the years and help you more than save your money through the years.
As as we all know but not admit that spending comes easy when money is laying around, so stash the unnecessary and see it grow ;)
the numbers in the example are rough estimates but give the actual idea of performance, and excuse me for the simplicity of the argument but it always comes handy
