Steady Investing vs. The War Chest: Two-Pronged Investing Strategies

Someone mentioned to me recently that it could be better to build my "war chest" and avoid buying at market all-time highs. Indeed, market highs could leave some people worried and keeping cash on the sidelines, fearing a market correction. Do you invest your savings now to make sure your money is in the market? Or do you wait patiently on the sidelines, keeping your "dry powder" for a crash that might be just around the corner?

This is often framed as a battle between two disciplines: the discipline of consistent, regular investing (a steady drip) versus the discipline of patient, opportunistic buying (the war chest). I will write about both of these for you to understand and decide for yourself.

The "Steady Drip" (Dollar Cost Averaging)

This investing approach is about investing regularly and consistently, deploying cash into investments once cash is available. For example, I plan to continue purchasing DBS in November and December this year, although I do not know what price it will end up at those times.  

A formally known approach involving regular investing is called Dollar Cost Averaging, where investors invest a fixed amount of money at regular intervals, regardless of stock prices. DCA gives us a cost basis that is neither high nor low, and ensures that we continue investing throughout different market conditions.

The War Chest (Lump-Sum Opportunism)

The "war chest" strategy is about building a separate pool of cash that is only deployed during special opportunities. You set a specific, attractive price for a high-quality stock, and you only buy when the market offers you that price. 

 

This is a strategy of price discipline: 

1. It Enforces Value Investing: It stops you from chasing hype and forces you to only buy at a price you have pre-determined is good value.
2. It Turns Fear into Opportunity: This is its greatest strength. When the market is crashing and others are panic-selling, you feel a sense of excitement. The sale you've been waiting for has finally arrived.

This is the extra cash you keep aside for a special occasion. You're waiting for that moment when your favorite, high-quality stock goes on a 30% off sale.

My Personal Approach

As someone building their investment portfolio to last for the next 60 years and quite possibly longer, I quite strongly prefer consistently investing cash when it is available. 

 

That means I whack all available capital into stocks now, with not much tucked away in a war chest. Keeping in mind that stocks can run up or down unpredictably, your "crash buy" in the future may still be more expensive than buying now. As the saying goes, time in the market beats timing the market. 

 

The most powerful strategy would be to do both. You build your portfolio steadily month by month, but you also build the firepower to take advantage of the rare, fat-pitch opportunities that market corrections provide. Adopting a mix of both strategies lets you build wealth consistently while sleeping soundly at night.

 

As a student, I lack the cash flow to adopt both strategies to a meaningful extent. Once I begin work full-time, I would adopt both strategies and maintain multiple pots of cash for different needs in life.