Beyond selecting assets, investors must decide how to behave over time. Dollar-cost averaging is a strategy in which a fixed amount of money is invested at regular intervals regardless of price. This approach buys more shares when prices are low and fewer when prices are high, gradually lowering the average cost per share while reducing the risk of mistiming the market. It is particularly well suited to volatile markets and long-term plans.
In contrast, market timing attempts to predict market highs and lows in order to buy low and sell high. Despite its intuitive appeal, timing is notoriously difficult, and most investors who try it underperform those who simply remain invested. The evidence broadly favors "time in the market" over attempts to time the market. Closely related is the buy-and-hold approach, in which investors purchase quality assets and hold them through market fluctuations, benefiting from compounding while minimizing taxes, fees, and emotional decision-making. Historically, buy-and-hold has outperformed frequent trading for the majority of investors.
Markets themselves move in recognizable patterns. A bull market is a prolonged period of rising asset prices, typically defined as a gain of 20 percent or more from recent lows, driven by optimism and economic growth and often lasting several years. A bear market, by contrast, features prices falling 20 percent or more from peaks, often triggered by recession fears or elevated valuations. While bear markets prompt fear and selling, they also create buying opportunities, and recoveries have historically followed. Within these cycles, investors pursue various styles. Value investing seeks stocks trading below their intrinsic worth, often identified through metrics like low P/E ratios, and was pioneered by Benjamin Graham and famously practiced by Warren Buffett. Growth investing targets companies with high earnings growth potential, often reflected in high P/E ratios, with technology stocks as a common example. Dividend investing focuses on stocks with consistent and growing payouts for income and reinvestment, with so-called dividend aristocrats having raised their dividends for 25 or more consecutive years, and tends to exhibit lower volatility than the broader market.