Here's the money problem most people run
into. They hear one person say just buy
index funds. Another person says buy
dividend stocks. Someone else says real
estate is the only real wealth. So today
we're ranking seven investment
strategies from worst to best. Let's get
into it. Welcome to Alux.
Number seven, stock picking without an
edge. Now stock picking means buying
shares in one company instead of buying
a big basket of companies. For example,
you buy Apple, Tesla, Nvidia, or Amazon
because you think that company will do
better than the market. The idea is
simple. Pick a company, buy the stock,
and hope it grows. Now, this can work.
Some people have made a lot of money
this way. But there is one big catch.
You need a reason why your pick is
better than just buying the whole
market. And that reason is called an
edge. An edge means you know something
useful. Maybe you understand the
business very well. Maybe you know how
to read the company's numbers. Maybe you
know when the stock is too expensive or
cheap. Maybe you're patient enough to
hold it for many years. Without that
edge, stock picking is mostly guessing.
In 2025, 79% of active large cap US
stock funds did worse than the S&P 500.
And these are people whose full-time job
is picking stocks. So if most
professionals struggle to beat the
market, a casual investor should not
treat stock picking as an easy game. The
good part is that stockpicking gives you
more upside. If you pick the right
company early, the returns can be much
bigger than the normal index fund. It
also teaches you how businesses work.
Profit, debt, cash flow, competition,
prices, and growth. The bad part is that
one bad pick can hurt you a lot. If you
own only a few stocks and one fails
badly, your whole portfolio feels it.
Another problem is that people often buy
companies they like, not stocks that are
actually priced well. A great company
can still be a bad investment if the
stock is already too expensive. This
strategy is for people who like studying
business, not for people who just want
to buy something and forget about it.
Stockpicking makes more sense if you
enjoy reading about companies, comparing
numbers, and thinking long term. How
much money do you need? Well, not much
to start. With fractional shares, you
could start with $50 to $100, but if you
want to build a real stock portfolio,
you probably need a few thousand so you
can spread your money across different
companies. That's why this one ranks
seventh. Stock picking isn't bad, but
stock picking without an edge is weak.
The main thing here is seeing how the
whole process works. Number six, market
timing. Now, market timing means trying
to jump in and out of the market at the
right moment. You sell before prices
fall. You wait in cash and then you buy
again when prices are low. On paper, it
sounds perfect. You avoid the crash. You
keep your money safe, then come back
when everything is cheap. The problem is
that the market rarely moves in a clean
or obvious way. The best days often
happen very close to the worst days. So,
if someone sells during a bad period,
they may also miss the quick bounce that
comes right after it. Looking at the S&P
500 from 1996 to 2025, they found that
missing the 10 best market days cut
returns in half. Missing the 30 best
days reduced returns by 84%.
They also found that 76% of the market's
best days happened during a bare market
or in the first two months of a new bull
market. So the days that people most
want to avoid are often sitting right
next to the days they most need to be
invested for. Now the good part about
market timing is that it can protect
money if someone's actually right.
Selling before a major crash and buying
back near the bottom can create huge
returns. This is why the idea is so
attractive. It gives the investor a
feeling of control. Instead of just
riding the market down, they're trying
to avoid damage. It can also make sense
in a softer form. For example, keeping
some cash ready for opportunities is not
the same as moving your whole portfolio
in and out. A business owner, a real
estate investor, or wealthy family may
keep cash because they want to buy when
others are forced to sell. The bad part
is that full market timing is very hard.
You don't need to just know when to
sell. You also need to know when to buy
again. And buying again usually feels
worst at the exact moment when the
prices are best. That's why this
strategy is not really for casual
investors. It's more useful for traders,
fund managers, or experienced investors
who have a clear system. For most
long-term investors, trying to time the
market can turn into sitting in cash for
too long. So, market timing ranks sixth
because it can work in theory, but it
also asks for two very hard decisions.
When to leave and when to come back.
Number five, dividend investing. Now,
dividend investing means buying stocks
or funds that pay you cash. A company
earns money, keeps some for itself, and
sends some back to shareholders as a
dividend. If you own the stock, you
receive a small payment. Usually, this
happens every quarter, though some
investments pay monthly or yearly. And
this is why dividend investing feels so
clear. The stock market can look fake
when it's just numbers moving on a
screen. Dividends feel more real because
money lands in the account. The investor
can point to it and say, "This asset
paid me." Now, there's a strong reason
people like this strategy. According to
Hartford Funds, from 1973 to 2024,
dividends contributed 34% of the total
return of the S&P 500, while price
growth contributed the other 66%.
Over long periods, dividends have been a
meaningful part of stock market returns,
not just a small bonus. The good part is
cash flow. Dividend investing gives
people income without needing to sell
shares. That can be useful for retirees,
people building passive income, or
investors who like seeing regular
payments. It also creates discipline. If
someone focuses on strong dividend
paying companies, they often end up
looking at mature businesses with
profits, cash flow, and a history of
returning money to shareholders. That
can be a healthy filter. And dividend
growth investing can also work well.
This means buying companies that don't
just pay dividends, but raise them over
time. A small dividend today can become
much larger years later if the business
keeps growing. The bad part is that
dividends are easy to misunderstand. A
dividend is not free money. When a
company pays cash to shareholders, that
cash leaves the company. The investor
gets money, but the company now has less
money. So, the real question isn't does
it pay a dividend. The real question is,
can this company afford to keep paying
and growing the dividend? And this is
where people get caught by high yields.
A 2% or 3% dividend from a strong
company can be healthy. A 12% dividend
can sometimes be a warning sign. The
market may be expecting the company to
cut the payment, or the stock may have
fallen because the business is in
trouble, which makes the dividend yield
look bigger than it really is. So,
dividend investing is best for people
who want income stability and a more
cash flow focused portfolio. It's not
only for old people, but it does fit
people who care about regular payments
more than maximum growth. How much money
do you need? Well, you can get started
with very little through dividend ETFs
or fractional shares. But if the goal is
meaningful income, you need much more. A
$10,000 portfolio with a 4% dividend
yield pays about $400 a year. That's
useful, but it's not financial freedom.
That's why dividend investing ranks
fifth. It's a real strategy and it can
work well, but it's not magic. It turns
ownership into income, but the quality
of the business still matters more than
the size of the payment. All right, now
we're reaching a tipping point here
where the strategies are starting to
have a bit more meat on the bones. We'll
give you the rundown on this video, but
just so you know, the really juicy
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annual membership. I'll see you on the
inside. But in the meantime, number
four, dollar cost averaging into index
funds. Now, dollar cost averaging means
investing the same amount of money on a
regular schedule. Maybe it's $100 a
month. Maybe it's 500. Maybe it's 20% of
every paycheck. The point is that you
don't wait for the perfect time. You buy
when the market is up, when the market's
down, when the news is calm, and when
everyone is panicking. Then you combine
that with index funds. So, this strategy
is not trying to be clever. It's trying
to be consistent. And the data supports
that. According to Vanguard, over the 30
years ending December 31st, 2023, the
average annual return for US stocks was
10.1%.
The good part is that this strategy
removes a lot of decision-making. You
don't need to guess which company wins.
You don't need to guess the next crash.
You don't need to check the market every
morning. You just set the amount, pick
the fund, automate the habit, and let
time do most of the work. This also
works with a normal income, too. Most
people don't receive one huge pile of
money. They get paid every month. So,
dollar cost averaging matches that
rhythm. Salary comes in, money gets
invested, life continues on. Now, you
will not have a crazy story about buying
one stock before it exploded. You will
not feel like a financial genius. and if
the market drops, your account will
still drop with it. Index investing
spreads risk, but it doesn't remove
risk. It's not the most powerful
strategy on the list, but for the vast
majority of people, it is the first
strategy that actually survives real
life.
Number three, value investing. Now,
value investing means buying an asset
for less than it's really worth. That
asset could be a stock, a business, a
house, a piece of land, a private deal,
or anything else where the price is
lower than the value. The simple version
is this. The market says it costs one
amount, but you believe it's worth more.
But in real life, the best value deals
usually come from one of two advantages.
Better information or better liquidity.
Better information means you see
something other people don't see yet.
Maybe you understand an industry better.
Maybe you know a business is stronger
than the market thinks. Maybe you have
access to private deals through lawyers,
brokers, founders, bankers, or other
investors. But a lot of good deals don't
appear on a public website with a big
sign saying undervalued asset here. No,
they move quietly through relationships.
Now, better liquidity means you can act
when other people can't. This is where
value investing becomes very practical.
Picture someone who needs to sell a
house fast. Maybe they're moving. Maybe
there's a divorce. Maybe there's debt
pressure. Maybe the property was
inherited and the family wants cash
quickly. The house might be perfectly
fine, but the seller doesn't want a slow
buyer who needs months of bank approvals
and conditions. They want certainty. If
you are the buyer who can commit
quickly, pay cash, and close fast, you
may get better prices. And that's the
core of value investing. You're not just
buying cheap things. You're buying
situations where the price is lower
because of fear, pressure, neglect,
confusion, or a lack of liquidity. The
good part is this strategy can create
real upside. If you buy a solid asset
below its real value, you don't need
everything to go perfectly. The discount
gives you a cushion. You make money
partly when you buy, not only when you
sell. The bad part is that cheap assets
are not always good assets. Sometimes a
stock is cheap because the business is
dying. Sometimes a house is discounted
because the repairs are worse than they
look. Sometimes a private deal is
exclusive because nobody smart wanted
it.
Number two, asset allocation and
portfolio strategy. Now, asset
allocation means deciding how much of
your money goes into each type of asset.
Not which singular stock, not which
individual coin, not which single hot
idea. The bigger question is how should
the whole portfolio be built? For
example, someone might keep 70% in
stocks, 20% in bonds, and 10% in cash.
Someone else might own stocks, real
estate, Bitcoin, private businesses, and
a larger cash reserve. The mix depends
on age, income, risk, goals, and how
soon the money is needed. Now, this is
where investing becomes less about
picking winners and more about building
a machine that can survive different
conditions. The good part is control
over risk. If everything is in risky
assets, the upside might be higher, but
the drops can be painful. If everything
is in cash, it feels safe, but inflation
eats it over time. Asset allocation
creates balance. Stocks can drive
growth. Bonds can add stability. Cash
can provide safety and opportunity. Real
estate can add income and leverage.
Alternatives can add upside or
diversification depending on the asset.
Each bucket has a job. Now, more safety
usually means less upside. More upside
usually means more volatility. More real
estate can mean less liquidity. More
cash can mean more missed growth. There
is no perfect mix. It's not
one-sizefits-all. There's only a mix
that fits the individual person better.
This strategy is for people who already
understand that investing is not just
about returns. It's also about staying
in the game. It fits people with larger
portfolios, families, business owners,
retirees, or anyone who needs their
money to do more than one job. And you
know, asset allocation might not sound
impressive, but it is how serious
investors think. They don't just ask,
"What should I buy?" They ask, "What
should my money be built to do?" And
number one, owner operator active
capital allocation. Now, owner operator
investing means putting money into
something where you can help to change
the outcome. This could be your own
business, a small company you buy, a
rental property you improve, a website,
a product, a franchise, a local service
business, or even a skill that increases
your income. The main difference is
control. With passive investing, you buy
the asset and wait. With owner operator
investing, you buy or build the asset,
then improve it. You can raise prices,
cut costs, improve the product, renovate
the property, hire better people, build
better systems, or find better
customers. That's why this one ranks
first. A useful data point comes from
the Federal Reserve's Survey of Consumer
Finances. In the 2022 data, households
of the top 10% by wealth owned the vast
majority of private business equity in
the US. That matters because private
business ownership is one of the
clearest examples of active capital
allocation. The people who build serious
wealth are often not just buying public
markets. They own pieces of businesses,
real estate, or assets they can
influence. If you buy an index fund, you
get the market return. That could be
excellent over time, but you cannot
improve the index. You cannot call Apple
and change the pricing strategy. You
can't fix Amazon's margins. You just own
a small piece and wait. With active
capital allocation, the return can come
from your decisions directly. A rental
property can become more valuable after
repairs. A business can become more
profitable with better sales. A content
brand can turn attention into products,
sponsorships, equity, or licensing. a
skill can raise income and that higher
income can then buy more assets. The bad
part is that this is harder and riskier.
It is not passive at all. It takes time,
judgment, and work. A business can fail.
A property can have hidden costs. A deal
can look better on paper than in
reality. A skill can take years to
become valuable. But nonetheless,
investing in things you actually control
will always be a good investment. Now,
there is one more investing strategy,
but it doesn't really belong on this
list because normal investors cannot
easily copy it. It's the strategy Warren
Buffett used to turn Berkshire Hathaway
from a struggling textile company into
one of the most powerful investment
machines in the world. He bought
insurance companies. And insurance is a
very strange business. And if you want
to learn more about it, check out this
video next.