Your Investment strategy is like your game plan for building your portfolio. But it is very important that you find the one that's right for your objectives and situation in life. A 25-year-old should have a different strategy than a 65-year-old.
We generally spend a decent amount of time planning for our workday, a vacation and buying a car, but we often forget or choose to ignore the most important plan of all: mapping out our investment strategy and plan for growing old and retiring.
Investing your money without an investment strategy is like a football team going into a game without a playbook. Although they are not required, they significantly improve your chances of winning.
Similarly, having an investment strategy is like having an instruction booklet guiding you through the investment process. It will help you discard many potential investments that may perform poorly over time or that are not right for the investment goals you are looking to achieve.
When creating an investment strategy, it is important to quantitatively figure out what you are seeking to accomplish. Stating that you simply want to make money or become wealthy is not helpful.
A better objective would be to say “I want to achieve an 8% average annual return on my investment contributions over the next 10 years in order to collect Rs. 20,00,000 that will be used to purchase a second home.”
The more specific the objective, the better. And it doesn't stop there. An investment strategy is useless without a proper understanding of it. Investment Advisors at Share India can help you design your portfolio and oversee your investments to better understand and manage them.
There are many different strategies that apply to different investment objectives, the key is pairing the right strategy with the right objective.
Let's discuss the top 5 investing strategies that work:
1. Value Investing:
An investment strategy made popular by Warren Buffet, the principle behind value investing is simple: buy stocks that are cheaper than they should be. Finding stocks that are under-priced takes a lot of research on the fundamentals of the underlying companies.
And once you've found them, it may take a few months or years for their price to rise. This buy-and-hold technique requires a patient investor who wants to keep their money invested for a few years. While the stock market has returned about 8% per year over the last 100 years, there are a few people like Warren Buffet whose stock picks have significantly outperformed the market.
Value stocks are typically associated with long-established companies with consistent growth rates, comparatively stable revenue, and consistent profitability. Investing in value stocks is not intended to become wealthy overnight.
2. Income Investing:
It's a great way to build wealth over time, income investing involves buying securities that generally payout returns on a steady schedule. Bonds are the best-known type of fixed income security, but the category also includes dividend-paying stocks, exchange-traded funds (ETFs), mutual funds, and real estate investment trusts (REITs).
Fixed income investments provide a reliable income stream with minimal risk and depending on the risk the investor is looking to take, should comprise at least a small portion of every investment strategy.
3. Growth Investing:
It is an investment strategy that focuses on capital appreciation. Growth investors look for companies that exhibit signs of above-average growth, through revenues and profits, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios.
It's a relatively riskier strategy, growth investing involves investing in smaller companies that have a high potential for growth, blue chips, and emerging markets.
4. Active Trading:
Active trading is hard. Those who have tried it in the past, have seen success at it. Even fewer see stellar returns.
Most active traders use some form of technical analysis as a research tool that focuses on the changes in the price of the stock, rather than in the measurements associated with the underlying business.
As such, you can profit from much shorter-term moves. You have the chance to employ leverage with your strategies.
With this trading strategy, you can work on any time frame from months, days, minutes, or even seconds. You can use price data from exchange feeds or from charting platforms to see recent price patterns and market trends. You use these to predict future price movements. To bolster your chances, you must set parameters for levels of risk, reward, and win-loss rates.
5. Passive Investing:
It is an investment strategy that aims to maximize returns by minimizing the amount of money spent on frequent buying and selling.
The goal of passive investing is to avoid the fees and poor performance that come with frequent trading and to build wealth gradually. Passive investing, also known as a buy-and-hold strategy, entails purchasing security to hold it for the long term.
Passive investors aren’t looking to profit from price fluctuations or market timing in the short term. The assumption behind the passive investment strategy is that the market will generate positive returns over time.
Setting up your investment strategy is like buying a new car, before you look at the different models, you need to figure out what style suits you best. And just like cars, there are many styles to choose from when creating an investment strategy.
When choosing the right investing strategy, there are questions that need to be answered first.
What is your investment horizon? What returns are you seeking to achieve? What amount of risk are you able to tolerate? What are the funds in this investment to be used for?
Answering these questions will ultimately help in building a strategy that is tailored to your needs. Ready to start investing? Get your online trading account with ShareIndia here - it takes less than 5 minutes to set up!