Which investment strategy to choose?
An investment strategy is a specific approach to investing that determines the choice of an investor in relation to his portfolio. Different investment strategies involve specific tactics based on fundamental beliefs. For example, value investing looks for stocks that are undervalued and sell below their true value, while growth investing seeks investment opportunities in companies with high growth potential. These are just a few of the many investment strategies available. In this article, we'll walk you through the main investment strategies to help you decide which one is right for you.
How to choose an investment strategy
There are a number of factors that go into choosing the investment strategy that works best for you. It's one thing to consider whether you want to choose an active or passive investment strategy. Investing actively involves buying and selling stocks frequently.
On the other hand, passive strategies are focused on buying and holding investments for the long term. Proponents of passive strategies argue that this reduces trading costs and increases tax efficiency. It also tends to be less risky than timing-to-market strategies, which can bring big gains when trying to outperform the market, but also suffer big losses. Portfolios often combine active and passive investing.
Other factors you need to consider are your time horizon, such as how close you are to important life events such as buying a house, having children, or retirement. If you need income soon, you may not want to, for example, choose a long-term investment. Another consideration is your risk tolerance. Generally, you can tolerate more risk at the start of your career and desire less risky and more stable investments as you retire. A strategy such as profitable investing, which is based on generating a stable income, can be less risky than a more subjective strategy, such as value investing.
A growth strategy is an investment strategy that focuses on building capital by buying stocks that can rise in value. This is most commonly seen in stocks where investors believe that the value of the company, and therefore the value of the stock they have acquired, is likely to rise.
Investing in growth consists of several sub-strategies. The two most common are short term and long term investments. Short-term, as a rule, means buying shares and holding them for less than a year. Investors use short-term growth investments when they believe the company's value is likely to rise rapidly. On the other hand, long-term investments are held for more than a year. Investors use them when they believe that the value of the company will grow steadily over the years.
Value investing is an investment strategy advocated by Warren Buffett and focuses on finding stocks that you think are inherently undervalued at major multiples. By finding companies that the market does not properly value, investors can make a big profit when the market eventually corrects and the company is properly valued. This is a very subjective type of investment.
Profitable investing is aimed at obtaining a stable income from your investments. Rather than looking for stocks that will rise in value and give your portfolio more hypothetical value without making you richer in monetary terms, profitable investing seeks to find investments in which your portfolio sees real value in the form of money in your pocket.
Profitable investments usually take two forms. The first is the shares on which dividends are paid. Some companies pay their investors a percentage of their profits in the form of dividends. Another common income investment investment is bonds, which pay coupons on an ongoing basis.
Socially Responsible Investing
Previous investment strategies have focused on how the investor makes money. This investment strategy is slightly different in that it takes a broader view of how your investments can affect the world as a whole, beyond your portfolio
You can adapt your socially responsible investing strategy to your personal concerns when it comes to social responsibility. If you are, for example, an environmentalist, you can invest heavily in green companies and avoid investing in fossil fuel companies. If you are concerned about foreign policy, you can avoid companies doing business in certain countries.
Investing in Small Cap Companies
Investments in small-cap companies are focused on companies with market capitalization, that is, with a total value of $ 250 to $ 2 billion. This means that you are not investing in companies that many investors are focused on (e.g. Apple, Ford, IBM, etc.), but instead in smaller companies that you think might do well in the future.
There is no one universal investment strategy that you should choose when creating your own portfolio. You might end up with something like a mixture. For example, you might build your portfolio primarily on growth investments, but include some profitable investments to guarantee yourself more money that you can use in your day-to-day life or reinvest to increase your income.
The best way to choose an investment strategy is to think about your financial and personal goals. Then figure out which strategy is most likely to help you achieve those goals.