Every investment carries a certain amount of risk, no matter how promising the industry is. No investors are one hundred per cent sure they will get their expected returns. In fact, anyone who has been in the business knows the possibility of losing what they have invested.
But they do understand that the greater the amount of risk they’re willing to take, the greater the return they can expect. That doesn’t mean you should dive right into every investment opportunity, though. Good investors have a clear map guiding them through the investment process: their investment strategy.
There are different investment strategies in the market, but not all will work best for you. However, with the appropriate one, you can significantly improve your chances of making better investments.
One of the essential steps to wise investing is to set your investment goals and the same applies when choosing the right strategy for your investment. It would be impossible to find one that will suit you best if you didn’t have a goal in the first place.
By having a clear set of goals, you can develop a strategy that will enable you to obtain them. Investment goals depend on what you’re seeking to achieve. It can be funding for college education, expanding business, planning for travel or retirement, and much more.
Each goal has its particular needs that can be addressed with a different strategy. That’s why it would be best to be clear and specific in your goal so you can pair it with the right strategy.
Once you’re done with goal setting, the next thing you need to do is to determine how long it will take you to achieve it. Each investment goal has its timeline, which is also a critical component of finding the right strategy for you.
For instance, if you’re investing for a short-term goal, such as buying a car, you might need to use a safer strategy. Since you’d need the money in a short period or a few years, an approach with lower risks might be better.
On the other hand, if you’re investing for a long-term goal like retirement, which is 20 or 30 years away, you have a longer period to recover from any potential downturn in the market. Thus, you can choose a strategy that may involve a little more risk.
Investment goals and timeline aren’t enough to allow you to find the right strategy. You would also have to define your risk tolerance. How much of a loss are you prepared to handle in your investment? As mentioned earlier, there is a possibility that you might lose the money you have invested.
If your risk tolerance is low, you might have to invest conservatively. By knowing how much loss you can withstand, you can choose a better game plan. Since you can’t predict if the market will go up or down in a short period, it’s safe to assume that short-term investments are riskier. In contrast, long-term investments have a higher chance of growing your money.
Choosing an investment strategy that also matches your risk tolerance is vital. Else, you might find yourself freaking out when the market is down.
An investment strategy can be useless if you don’t understand it. Before you commit to anything, take a look at the following investment strategies and see which will work best on you.
The idea behind value investing is to buy stocks that are cheaper than they should be. You would focus on finding stocks that you believe are intrinsically undervalued. Once you’ve found them, it may take a few months or years for their value to rise. Thus, you would need more patience for this technique.
The focus of this approach is generating a steady income from your investments. With fixed-income investments, you have a reliable income stream with minimal risk. The risk depends, though, on how much you’re willing to take.
This technique focuses on companies with a market cap or total value between $250 million and $2 billion. Instead of investing in the companies that many investors seek out, you invest in smaller companies you think could do well in the future.
In a socially responsible investing strategy, you invest according to what you personally care about. For instance, you might invest heavily in green companies and avoid those that deal with fossils if you’re an environmentalist. You consider the impact of your investment on the environment and world at large.
Choosing an investment strategy can be difficult. Before you commit, you need to figure out what terms suit your needs and resources. Is the strategy appropriate for your needs? Can you fund this investment? Or will you often need to take out online installment loans with instant approval just to continue investing?
There are many options to choose from when setting up an investment strategy. That’s why you need to weigh all the significant factors mentioned above.
The best investment strategy for you won’t always be the one that has the highest historical return. It’s the one that would work best on your investment goal, timeline, and risk tolerance.
Above all, choose an investment strategy you are most comfortable with.