There’s no doubt that making the decision to invest some of your spare money or savings is a wise move. The fact is that most bank savings accounts offer low annual interest rates where your money doesn’t grow as much as it could over the years; however, taking the alternative route of investing in the financial markets does require careful thought and, preferably, some expert advice.
Professional investors use a range of different investment strategies in order to achieve their financial goals. While these are very much dependent on individual circumstances and need to be adaptable to market realities, there are also a few basic professional investment strategies that you should look at, and consider which ones are most suited to your needs.
Set your goals
As with any other field, your strategy should be determined primarily by what you hope to achieve. Be as specific as possible. Of course, you want to make money, but are you hoping for a regular, steady income over the next few years, or a big pay-off further down the line? Are you hoping to create a nest egg for your retirement, or is it your intention to live off your investments immediately, and if so what kind of return do you need?
Whether you hope your investments will help you buy your own home or provide something to pass on to your children, calculating how much you need and when you need it is crucial to determining the strategies you should use.
The balancing act
Most successful investors would agree that your over-arching strategy should be to maintain a diverse, well-balanced portfolio. As well as having a mix of different asset classes across different sectors, this should include different investment strategies. The exact balance, again, will depend on your goals.
In today’s volatile financial market it’s vital to actively monitor your portfolio and update your strategies when necessary. The qualified investment experts at Goldstone Financial Group know that passive “buy and hold” strategies will not in themselves help most people to achieve their financial goals. A range of more aggressive equity strategies is needed that will maximize your returns and cover you against losses as much as possible.
Risk tolerance is hard to define, as of course, no-one wants to lose money. But some people are more comfortable taking bigger gambles than others. We all know that the value of investments can go up as well as down and that investments with the highest potential return are also often those that could dramatically lose value, or bottom out completely. If that prospect makes you feel anxious then you might be better off with a strategy that gives unremarkable but steady, reliable returns over a longer period of time.
Short or long term
Short-term investing is generally riskier than long-term investing, but your strategy will be determined not only by your risk tolerance and goals but also by how long you’re prepared to wait. To some degree, this will depend on how old you are when you begin investing. The younger you start the more options you’ll have available.
For those that still want to play it relatively safe, income investing is a strategy based on buying securities that will give you an immediate steady return. These typically include bonds, ETFs, mutual funds and dividend-paying stocks, as well as real estate. These fixed income securities should form a part of every portfolio alongside more adventurous strategies.
Growth and small-cap investing
Growth investing involves looking for small companies with great potential, or those already expanding rapidly, and investing in them in the hope of handsome returns. This is a riskier strategy but one that can pay off quickly and impressively if all goes well.
Small-cap investing is based on buying stock in companies with relatively small market capitalization. Such stocks can often be overlooked by investors and so may be priced at less than their true value, whereas large-cap stocks can be overpriced as everyone rushes to buy them. Small-cap investing is risky though and should only be undertaken by experienced investors or with expert advice.
As the above shows, it’s vital to consider your strategy when it comes to investing. Take the time to identify which approaches will prove most useful for the future and those that will provide sustained income and decent returns. Unless you’re very confident in handling this yourself, it’s always best to invest through a professional company with experts in the field that will help you get the returns and the results you expect.