Which is the better strategy for buying stocks monthly?
"You will invest 1000£ each month and the transaction fee is 10£ per trade, so buying a bunch of stocks each month would not be wise.  If you buy 5 stocks, then transaction costs will eat up 5% of your investment.  So if you insist on taking this approach, you should probably only buy one or two stocks a month. It sounds like you're interested in active investing & would like a diversified portfolio, so maybe the best approach for you is Core & Satellite Portfolio Management.  Start by creating a well diversified portfolio ""core"" with index funds.  Once you have a solid core, make some active investment decisions with the ""satellite"" portion of the portfolio.  You can dollar cost average into the core and make active bets when the opportunity arises, so you're not killed by transaction fees." To optimize your return on investment, you need to buy low and sell high.  If you knew that one stock had hit rock bottom, and the others had not, buying the low stock would be the best. However, unless you can predict the future, you don't know if any individual stock has hit the bottom, or if it will continue to drop. If you decide to spend the same amount of money each month on stock purchases, then when the price is low, you will automatically buy more shares, and when the price is high, you will buy fewer shares.  This strategy is sometimes called dollar cost averaging.  It eliminates the need to predict the future to optimize your buying. All that having been said, I agree with @Powers that at the investment amount that you are talking about and the per transaction fee you listed, a monthly investment in several stocks will cause you to lose quite a bit to transaction fees.  It sounds like you need a different strategy. Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can  use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question... It would seem that you are in a position where you are able to save money and you hope to have your money work for you. From your statement above, it is implied that you are a professional with a steady income not related to the finance field. With that said, it is better to diversify your portfolio and have your money work for you through passive investments rather than an active one, where you actively search for companies that are below market price. That research takes time and much more experience in order to properly execute.  Now, if your overall goal is to trade actively, then maybe researching individual companies might be the best way to get your feet wet. But, if your goal is to create a diversified portfolio and make your money work for you, then passive is the way to go.  Two passive financial Vehicles:  Mutual funds and ETFs. Depending on what you are hoping to accomplish in the future, an ETF or a mutual fund will likely suite your situation. I would encourage you to do your due diligence and find out the weakness and strength of each. From there you are able to make an informed decision.
There's no best strategy. Options are just pieces of paper, and if the stock price goes below the strike price - they're worthless. Stocks are actual ownership share, whatever the price is - that's what they're worth. So unless you expect the company stock prices to sky-rocket soon, RSU will probably provide better value. You need to do some math and decide whether in your opinion the stock growth in the next few years justifies betting on ESOP. You didn't say what country you're from, but keep in mind that stock options and RSUs are taxed differently and that can affect your end result as well. I'd recommend looking at fundamental analysis as well -- technical analysis seems to be good for buy and sell points, but not for picking what to buy.  You can get better outperformance by buying the right stuff, and it can be surprisingly easy to create a formula that works.  I'd check out Morningstar, AAII, or Equities Lab (fairly complicated but it lets you do technical and fundamental analysis together).  Also read Benjamin Graham, and/or Ken Fisher (they are wildly different, which is why I recommend them both). I'm not sure it is the best idea, but you can buy only 4 stocks generally.  As you alluded to, you should take notice of the fees.  Also note that many stocks trade at significantly lower prices than Apple's per shares, so you might want to factor that into your decision.  You could probably get a better feel for transactions if you bought say 50 shares of a $30 stock; then it might be easier to see what it's like to sell some, etc. Note that specific trading sites might have various limits in place that would pose as barriers to this sort of behavior though. "If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following ""market conditions"" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska). Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about." "I assume by that you mean gradually buying the same mix of funds over time.  If that's the case, there is no rational reason to do this.   Dollar-cost averaging is an artifact of the way most people fund their 401(k).  I would not consider it a viable ""strategy"".  (Neither does Wikipedia)  Let's say you have $100,000 that you add $10,000 at a time.  When you add money, one of three things can happen: Since you can't predict the future, there's no mathematical justification for buying in segments.  There's just as much chance that your funds will be worth more or less, so on average it should make little to no difference.   In fact, given the time value of money there is a slight  advantage to investing it all now so you can capture any future returns.  You can always rebalance later to capture gains on some funds and purchase funds that are down to (hopefully) catch them on a rebound." "You have heard the old adage ""Buy low, sell high"", right? That sounds so obvious that you'd have to wonder why they would ever bother coining such an expression. It should rank up there with ""Don't walk in front of a moving car"" on the Duh scale of advice. Well, your question demonstrates exactly why it isn't quite so obvious in the real world and that people need to be reminded of it.  So, in your example, the stock prices are currently low (relative to what they have been). So per that adage, do you sell or buy when prices are low? Hint: It isn't sell. Yes. Your gut is going to tell you the exact opposite thanks to the fact that our brains are unfortunately wired to make us susceptible to the loss aversion fallacy. When the market has undergone a big drop is the WORST time to stop contributing (buying stocks).  This example might help get your brain and gut to agree a little more easily: If you were talking about any other non-investment commodity, cars for instance.  Your question equates to.. I really need a car, but the prices have been dropping like crazy lately.    Maybe I should wait until the car dealers start raising their prices again before I buy one. Dollar Cost Averaging As littleadv suggested, if you have an automatic payroll deduction for your retirement account, you are getting the benefit of Dollar Cost Averaging. Because you are investing the same amount on a scheduled interval, you are buying more shares when they are cheap and fewer when they are expensive. It is like an automatic buy low strategy is built into the account. The alternative, which you are implying, is a market timing strategy. Under this strategy, instead of investing regularly you try to get in and out of investments right before they go up/drop. There are two MAJOR flaws with this approach:   1) Your brain will work against you (see above) and encourage you to do the exact opposite of what you should be doing.   2) Unless you are clairvoyant, this strategy isn't much better than gambling. If you are lucky it can work, but because of #1, the odds are stacked against you." "You mentioned three concepts: (1) trading (2) diversification (3) buy and hold.   Trading with any frequency is for people who want to manage their investments as a hobby or profession.  You do not seem to be in that category.  Diversification is a critical element of any investment strategy.  No matter what you do, you should be diversified.  All the way would be best (this means owning at least some of every asset out there).  The usual way to do this is to own a mutual or index fund.  Or several.  These funds own hundreds or thousands of stocks, so that buying the fund instantly diversifies you. Buy and hold is the only reasonable approach to a portfolio for someone who is not interested in spending a lot of time managing it.  There's no reason to think a buy-and-hold portfolio will underperform a typical traded portfolio, nor that the gains will come later.  It's the assets in the portfolio that determine how aggressive/risky it is, not the frequency with which it is traded. This isn't really a site for specific recommendations, but I'll provide a quick idea:  Buy a couple of index funds that cover the whole universe of investments.  Index funds have low expenses and are the cheapest/easiest way to diversify.  Buy a ""total stock market"" fund and a ""total bond fund"" in a ratio that you like.  If you want, also buy an ""international fund.""  If you want specific tickers and ratios, another forum would be better(or just ask your broker or 401(k) provider).  The bogleheads forum is one that I respect where people are very happy to give and debate specific recommendations. At the end of the day, responsibly managing your investment portfolio is not rocket science and shouldn't occupy a lot of time or worry.  Just choose a few funds with low expenses that cover all the assets you are really interested in, put your money in them in a reasonable-ish ratio (no one knows that the best ratio is) and then forget about it." "You said your strategy was to put it into a index fund.  But then you asked about setting  stock limits.   I'm confused. Funds usually trade at their price at the end of the day, so you shouldn't try to time this at all. Just place your order. If you are buying ETFs, there is going to be so much volume on the market that your small trade is going to have no impact on the price. You should just place a market order. A market order is an order to buy or   sell a stock at the current market   price. A limit order is an order to buy or   sell a security at a specific price. In the US, when you place a trade with any broker, you can either place a limit order or a market order.  A market order just fills your order with the next best sellers in line.  If you place an order for 100 shares, the sellers willing to sell 100 shares at the lowest price will be matched with your order (sometimes you may get 50 shares at one price and 50 shares at a slightly different price).    If your stock has a lot of volatility and you place a market order for a small amount of shares,  you will get the best price. If you place a limit order, you specify the price at which you want to buy shares.  Your order will then only be filled with sellers willing to sell at that price or lower (i.e. they must be at least as good as you specified).  This means you could place an order at a limit that does not get filled (the stock could move in a direction away from your limit price).  If you really want to own the stock, you shouldn't use a limit order.  You shouldn't only use a limit order if you want to tell your broker ""I will only buy this stock at this price or better.""  p.s. Every day that passes is NOT a waste.  It's just a day that you've decided investing in cash is safer than investing in the market." 50 (dollars, Euros?) is a very small amount to invest. The first time I ever bought stock I picked a winner. It went up by about 40% in the first few months. I sold it and lost money. How? I only bought 10 shares at $7.50 each. The profit was less than the two commissions for buying and selling (about $17 a piece). If you are thinking of buying individual stocks, You simply need to save up more money before it will be practical. If you are not trying to beat the market, which is probably not something an amateur like you or I should attempt, then you should consider low cost index funds. I have money in mutual funds, some of which, have as low as a $100 minimum investment. I have moved entirely away from picking stocks. It was a good experience and I could afford to lose the money, but as a long term strategy, it just was not working for me. Note: This is coming from an American. If this somehow does not apply in Europe... "My theory is that for every stock you buy, you should have an exit strategy and follow it.  It is too hard to let emotions rule if you let your default strategy be ""let's see what happens."" and emotional investing will almost never serve you well.  So before buying a stock, set a maximum loss and maximum gain that you will watch for on the stock, and when it hits that number sell.  At the very least, when it hits one of your numbers, consciously make a decision that you are effectively buying it again at the current price if you decide to stay in. When you do this, set a new high and low price and repeat the above strategy." Your strategy of longing company(a) and shorting company(b) is flawed as the prices of company(a) and company(b) can both increase and though you are right , you will lose money due to the shorting strategy. You should not engage in pair trading , which is normally used for arbitrage purposes You should just buy company(a) since you believed its a better company compared to company(b) , its as simple as that "I saw that an answer hasn't been accepted for this yet: Being bearish is a good hedging strategy. But being hedged is a better hedging strategy. The point being that not everything in investments is so binary (up, and down). A lot of effective hedges can have many more variables than simply ""stock go up, stock go down"" As such, there are many ways to be bearish and profit from a decline in market values without subjecting yourself to the unlimited risk of short selling. Buying puts against your long equity position is one example. Being long an ETF that is based on short positions is another example." The risk of the particular share moving up or down is same for both.   however in terms of mitigating the risk, Investor A is conservative on upside, ie will exit if he gets 10%, while is ready to take unlimited downside ... his belief is that things will not go worse .. While Investor B is wants to make at least 10% less than peak value and in general is less risk averse as he will sell his position the moment the price hits 10% less than max [peak value] So it more like how do you mitigate a risk, as to which one is wise depends on your belief and the loss appetite "But I don't see how it's any different than buying a stock at a low price and holding on to it for some months. Based on your question, I would say the difference is time. Day trading by its nature is a 6-hour endeavor. If you buy low and are planning to sell high, then you only have a few hours to make this happen. As a previous poster mentioned, there is a lot of ""white noise"" that occurs on a weekly/daily/hourly/min basis. Long-term investors have the time to wait it out. Although, as a side note, if you were a buy-and-hold investor from the 1960s-early 1980s, then buy and hold was not very good. Is it just the psychological/addictive aspect of it? This is the biggest reason. Day trading is stressful and stress can cause financially destructive decisions such as over-leveraging, over-trading, etc. Why is day trading stressful? Because you are managing hundreds to thousands of trades a year. When combined with the lack of time in a day to make moves, it becomes stressful. Also, many day traders do it full time. Which adds to the pressure to be correct and to be incredible at money managment. A lot of buy-and-hold investors have full time jobs and may only check their positions every month or so." This is Rob Bennett, the fellow who developed the Valuation-Informed Indexing strategy and the fellow who is discussed in the comment above. The facts stated in that comment are accurate -- I went to a zero stock allocation in the Summer of 1996 because of my belief in Robert Shiller's research showing that valuations affect long-term returns. The conclusion stated, that I have said that I do not myself follow the strategy, is of course silly. If I believe in it, why wouldn't I follow it? It's true that this is a long-term strategy. That's by design. I see that as a benefit, not a bad thing. It's certainly true that VII presumes that the Efficient Market Theory is invalid. If I thought that the market were efficient, I would endorse Buy-and-Hold. All of the conventional investing advice of recent decades follows logically from a belief in the Efficient Market Theory. The only problem I have with that advice is that Shiller's research discredits the Efficient Market Theory. There is no one stock allocation that everyone following a VII strategy should adopt any more than there is any one stock allocation that everyone following a Buy-and-Hold strategy should adopt. My personal circumstances have called for a zero stock allocation. But I generally recommend that the typical middle-class investor go with a 20 percent stock allocation even at times when stock prices are insanely high. You have to make adjustments for your personal financial circumstances. It is certainly fair to say that it is strange that stock prices have remained insanely high for so long. What people are missing is that we have never before had claims that Buy-and-Hold strategies are supported by academic research. Those claims caused the biggest bull market in history and it will take some time for the widespread belief in such claims to diminish. We are in the process of seeing that happen today.  The good news is that, once there is a consensus that Buy-and-Hold can never work, we will likely have the greatest period of economic growth in U.S. history. The power of academic research has been used to support Buy-and-Hold for decades now because of the widespread belief that the market is efficient. Turn that around and investors will possess a stronger belief in the need to practice long-term market timing than they have ever possessed before. In that sort of environment, both bull markets and bear markets become logical impossibilities. Emotional extremes in one direction beget emotional extremes in the other direction. The stock market has been more emotional in the past 16 years than it has ever been in any earlier time (this is evidenced by the wild P/E10 numbers that have applied for that entire time-period). Now that we are seeing the losses that follow from investing in highly emotional ways, we may see rational strategies becoming exceptionally popular for an exceptionally long period of time. I certainly hope so! The comment above that this will not work for individual stocks is correct. This works only for those investing in indexes. The academic research shows that there has never yet in 140 years of data been a time when Valuation-Informed Indexing has not provided far higher long-term returns at greatly diminished risk. But VII is not a strategy designed for stock pickers. There is no reason to believe that it would work for stock pickers. Thanks much for giving this new investing strategy some thought and consideration and for inviting comments that help investors to understand both points of view about it. Rob