I’m currently studying for the GAMSAT which is the medical entry test similar to the MCAT in the US and in the second section you have to write an essay based upon a selection of quotes with a common theme. I came across this quote from Joan Robinson and I couldn’t quite figure out its meaning until i read it in its context and it made me think about my current and future investment strategies.
“It is the rate of investment which governs the rate of saving, and not vice versa”
Joan Robinson
My current strategy is to have invested in a few decent companies and hold them, but this is with money invested just after I left high school, with some ups and downs. My future strategy involves dollar cost averaging (DCA) which is essentially investing a set amount of money at set periods, buying less when prices are high and more when prices are low. In theory this allows you to ‘beat the market’ by ultimately having more stocks at lower prices. I have accumulated a sum of money over the past two years but have yet to invest due to the overvalued market conditions. My plan is to drop my current sum into the market after a crash, but not all at once, in certain increments spread over 1 to 2 years in order to not have the market continue to fall on me if i dove in with everything. This idea is based of the 2008 Global Financial Crisis which took 2 years to reach its ultimate low, roughly half the value of the previous high in 2007.
Based on the history if I were to invest at several points during a market crash, I may experience some minor losses but if we see a similar bull trend to the previous one to date, I should almost double my capital as well as reap the benefits of compound interest.
Back to the quote from Joan Robinson, DCA is a strategy determined by your income. Unless you transform your savings into your investment, which is riskier for short term investing, ie. for buying a house as you are at the whim of the market conditions without the guarantor of compound interest to back you up. But, if I managed to invest at the lowest point, transforming my share portfolio into my savings account I should only see gains. This strategy forces me to not spend that money, but also generates vastly greater interest than if it were in a high saver interest account which is currently a measly 2.25%.
Additionally, I have noticed the more money I have, the less I feel the need to be thrifty and inventive to do things to earn money, as I was as a teenager. In other words, my entrepreneurial spirit seems to be fading, which I don’t like. Thus, but investing all my savings I am back to square one and will have to become more entrepreneurial in my money making ways, which excites me.
Harrison Hansford 