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When I taught at the elementary level, I taught the struggling readers in my class to sound words out phonetically. As I taught upper el, the damage had pretty much been done, but not entirely. When they would read, they would just stab at words they didn’t know, without sounding out the word. When they realized how easy it was to read by sounding out unrecognizable words, they had more confidence. After awhile, all words become “sight-words” once they’re familiar to them.

That is the right way. Phonics first, then sight. Phonics is the fallback when sight fails (as it does frequently in the English language). Phonics is how I learned to read. First cereal boxes, then children's books, then newspapers and magazines and real books.

Mature readers read by sight. In particular, they tend to focus on the first and last letters of each word. Even if the intermediate letters are messed up, they can still puzzle out the text. Example:

Frsorcoue and sveen yeras ago our fatehrs bughrot ftorh, uopn this ceontnint, a new ntaion, cncoieevd in liebrty and daeceitdd to the pirotisoopn taht "all men are ceatred eaqul."
Now we are eggnead in a garet cviil war, ttiseng whhteer taht noaitn, or any notain so cieconved and so dceatided, can lnog eundre. We are met on a graet bietaefltld of taht war. We hvae cmoe to deditcae a pitoorn of it, as a fnail rntseig palce for tsohe who deid hree, taht the niaotn mihgt lvie. Tihs we may, in all peptroiry do. But in a legarr ssnee, we cnoant deidatce, we cnonat cascrontee, we cnnaot hllaow, tihs gnruod. The bvare men, lvniig and daed, who srgugeltd hree, have hoalweld it, far avobe our poor peowr to add or dcatert. The wrlod will lttile note, nor long remeembr waht we say hree; wilhe it can neevr fgoert waht tehy did hree.
It is rhater for us the lnviig, we hree be dctiedead to the gerat tsak rnaienmig bfreoe us—taht form tshee horoend daed we tkae incersead deotoivn to taht casue for whcih tehy here gvae the lsat flul mausree of doeoitvn—taht we hree higlhy rlesvoe that tsehe daed shlal not hvae deid in vian, taht tihs naoitn slahl have a new brith of feeodrm, and taht gmrneneovt of the poeple, by the ppolee, for the plpeoe slahl not psreih form the etarh.

Link: https://www.mrc-cbu.cam.ac.uk/people/matt.davis/cmabridge/. Abstract:

Aoccdrnig to a rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe.