Investment Strategies
What are the investment strategies?
Investment strategies are strategies that help investors choose where and how to invest based on expected return, risk appetite, body size, long term, short term, age retirement, choice of industry, etc. Investors can plan their investment plans based on the goals and objectives they want to achieve.
The 7 best types of investment strategies
Let us discuss one by one the different types of investment strategies.
The passive strategy involves buying and holding stocks
and not trading them frequently to avoid higher transaction costs. They think they cannot outperform the market because of its volatility; therefore, passive strategies tend to be less risky. On the other hand, active strategies involve frequent buying and selling. They believe they can outperform the market and earn higher returns than the average investor.
The investor has chosen the holding period according to the value he wishes to create in his portfolio. If investors believe that a company will develop in the coming years and that the intrinsic value of an escort will increase, they will invest in these companies to build their corpus value.
The idea behind investing in such companies is that when the market hits the correction of it will correct the value of those undervalued companies and the price will rise, leaving investors with high returns when they sell. This strategy is used by the very famous Warren Buffet.
Value investing strategy involves investing in the company by looking at its intrinsic value because such companies are undervalued by the stock market. The idea behind investing in such companies is that when the market goes for correction, it will correct the value for such undervalued companies, and the price will then shoot up, leaving investors with high returns when they sell. This strategy is used by the very famous Warren Buffet.
This type of strategy focuses on generating cash income from stocks rather than investing in stocks which only increase the value of the portfolio. There are two types of cash income that an investor can earn: (1) Dividend and (2) Fixed Income from Bonds. Investors looking for a stable income from their investments opt for such a strategy.
In this type of investment strategy, the investor looks for companies that have paid a dividend consistently each year. increase dividend payments each year. Investors reinvest these dividends and benefit from long-term capitalization.
This type of strategy allows investors to buy stocks of companies when the market is falling. This strategy is to buy minimum and sell maximum.
Stock market downtime usually occurs at the time of recession, war, calamity, etc. However, investors should not buy the shares of any company during periods of inactivity. They need to look for companies that have the capacity to create value and that have a brand that prevents entry into competition.
This type of investment strategy allows investors to invest a small portion of the shares in a stock index. These can be SandP 500, mutual funds, exchange traded funds.
Investment Tips
Here are some investment tips for beginners that should be kept in mind before investing.
Set goals for how much money you will need over the next period. This will allow you to clarify whether you should invest in long term or short term investments and what the expected return is.
Do your research properly to understand how the stock market works and how different types of instruments (stocks, bonds, options, derivatives, mutual funds, etc.) work. In addition, research and follow the trends in the prices and returns of the stocks you have chosen to invest.
Select the best portfolio from among the set of portfolios that meet your objective. The portfolio that offers the highest return at the lowest possible risk is an ideal portfolio.
Find a good consulting firm or brokerage firm. They will guide you and advise you on where and how to invest in order to achieve your investment goals.
Knowing the level of risk you are willing to tolerate in order to obtain the desired return. It also depends on your short and long term goals. If you want a higher return in a short period of time the risk would be higher and vice versa.
Create a portfolio made up of a mix of debt, equity and derivative securities so that the risk is diversified. Also make sure that the two titles are not perfectly related to each other.
Benefits of investment strategies
Some of the benefits of investment strategies are as follows:
Investment strategies allow you to diversify the risks of your portfolio by investing in different types of investment and sector investments depending on the timing and expected returns.
A portfolio may consist of a single strategy or a combination of techniques to meet the preferences and needs of investors.
Investing strategically enables investors to get the most out of their investments. Investment strategies reduce transaction costs and pay fewer taxes.
Limitations of investment strategies
Some of the limitations of investment strategies are as follows:
Average investors find it difficult to outperform the market. It could take years to get an average return on investment, while professional investors would earn the same return within weeks or months.
While much research, analysis and historical data are considered before investing, most decisions are made on a predictive basis. Sometimes results and returns may not be what they expected and may delay investors in achieving their goals.
Conclusion
It is essential to have an investment strategy. This will help you exclude poor portfolios and increase your chances of success. Ask yourself some basic questions like how much do I want to invest. How much return do I need? What is my tolerance for
risk?
What will my investment horizon be? Why did I need to invest? Etc.The clearer your goals, the better your investment decision. Always look for the right opportunities and never support all at once. Building a portfolio is like building a house brick by brick, money for money.
