Understanding The 40-30-30 Method In Investment
If you want to invest your money effectively, the question often arises when is the right time to buy and sell and how much should be the best. After all, you don’t want to catch a bad time that costs a lot of money that may even lead you to finding a money solution. One way out can be the 40-30-30 method. We show what this investment strategy can do.
What is the 40-30-30 method?
This is about dividing the amount to be invested into three bites. So first we take 40 percent of the total and invest it. We are setting ourselves a goal up and down, in which we want to invest a further 30 percent. And we’ll do that again for the remaining 30 percent until our money is invested. This 40-30-30 method has the advantage that we don’t have to open a savings plan and invest our money faster, but we don’t run the risk of getting a really bad time to buy. This is how this investment strategy can theoretically look:
- Investment of the first 40 percent at a price of 100
- Invest the next 30 percent if the price is 105 or 95
- Invest the last 30 percent when the price was 105 and dropped back to 100, or if it was 105 and now 110, or if the price was 95 and fell again to 90, or if it was 95 and now 100 has risen again.
The percentage increases or losses must be decided by each investor and then act accordingly. Basically, it’s about simply dividing the times in order not to fall into the time trap. With the 40-30-30 method, in the best case you give off some return to lower your risk (if the prices simply continue to rise and you get less shares for your money) or get more shares for your money because that Courses have dropped and you have taken your time to wait. Of course, it may be that in certain cases investors benefit more from a one-off investment. But in this case the risk of the right timing would be significantly higher. But how does this strategy behave if I want to sell my shares?
Sell with the 40-30-30 method
Surprise: This is similar to buying one. If we want to sell stocks using the 40-30-30 method, we are now splitting the sales times over several times. Again, we want to ensure that we do not sell at a bad time and that we lose profit as a result.
That’s why we want to do the same with sales as when buying and first sell 40 percent of the position, another 30 percent when we reach the next target and then the last 30 percent again. Accordingly, a sales strategy could look like this:
- Selling the first 40 percent at a rate of 120
- Selling the next 30 percent at a rate of 115 or at a rate of 125
- Selling the last 30 percent when the price was 125 and rose to 130 or 125 and fell to 120, or when the price was 115 and rose to 120, or when it was 115 and fell to 110
In this example, we assumed that the price rose. Of course, it can also happen that an investment simply stays in the red in spite of everything. Here, too, you should set goals for when to sell to limit losses.
With this method, it is important to pay attention to the costs. Since there are three buying and three selling times for the 40-30-30 method, there could be higher costs than for a one-time investment. This must be weighed up against the time risk before buying and selling.
The 40-30-30 method also requires discipline on the part of the investor and knowledge of when good times and when bad times are.