investment strategy

How much profit you can make by investing will depend on your investment strategy. Investment strategies will make your investment more secure and maximize your profit.

Determining investment strategies will put you ahead of many others. Because a large portion of investors has no strategy. So they do not get what they expect and dropped out. But the top investors follow investment strategies to make a decent amount of profit.

To formulate an immaculate investment strategy you have to spend enough time in research and analyze the financial statements of the company.

What Is Investment Strategy?

Investment Strategy is a guideline based on which you will make an investment decision. Investment Strategy helps you to maximize your return while minimizing your risk.

What are the Investment Strategies?

There are several investment Strategies:

  • Value Investing
  • Active Strategies
  • Growth Investing
  • Dollar-Cost Averaging (DCA)
  • Income Investing
  • Buy and Hold Investment Strategy

 

Investment Strategies

Value Investing

Value investors are those who prefer to buy at a lower price by bargaining. They always want to buy shares that are undervalued. Investors often get the opportunity to buy undervalued shares at a discount. Companies are forced to give up shares at a lower price when they do not get the expected value of the shares from the market. Value investors aim to make more profit by selling shares when the price rises.

Such investors do not like to spend much time in market research or the financial condition of the company is not very important to them. When a company is in trouble and sells shares at a low price, they want to take advantage of that opportunity. But many investors can make money in this way, but a large part cannot make good money. Because to make money using this strategy, the investor has to stay in the market for a long time.

But many investors withdraw their investment from the market if they do not make a good income for a few years, due to which they cannot make a reasonable profit by investing in this way. Warren Buffet is a value investor. Who has come to today’s position using value strategy. He has been successful in investing in the potential sector in the long run.

Those who do not want to spend much time in market research can use the price-earnings ratio (P / E). This allows you to easily understand whether a share is undervalued or overvalued. Divide the share price by earnings per share (EPS) to get the price-earnings ratio (P/E).

Related Article – How to Start Investing (A Guide for Beginners)

Active investment strategies

There are some investors who want to make a profit by investing in the short term. They always want to be active in buying and selling. Whenever a share price goes up, they rush to buy it and sell it if they can make a small profit from that share. This investment strategy is also called “momentum investing” strategy. But this strategy is very risky.

To make a profit from stock trading, you need to invest for the long term. Almost all of the people who are successful in investing have invested in the long term. Quickly selling a stock after buying it – a strategy that has rarely been used by successful traders. So those who are trading using active strategy should be more careful and before investing analyze the market well then invest.

Related Article – How to Start Investing with Little Money ( Beginners Guide)

Growth Investing

Value investors invest without any research. But growth investors do fundamental analysis before investing. They want to find out the real financial condition of the company by analyzing the financial statements and fundamental factors of the company.  A financial statement is a statement that contains all the current and past data of a company. An investor can understand the financial condition of a company by analyzing it.

Through financial statement growth investors verify whether the company’s growth is sustainable. They decide to invest in the company only if the analysis shows that the future growth of the company’s shares will be very good. They usually don’t want to buy less expensive weak shares. Such investors prefer to invest in portfolio rather than an index fund.

One problem here is that those who are beginners cannot analyze properly. Many people do not have enough time to invest in proper research.

Dividends are less available in growth investing. Because the company needs more capital to sustain the business when it is growing, the company leaves a large portion of the profits for business expansion.

However, this strategy is very effective for those who want to invest in the long-term. This strategy will greatly reduce your risk and provide sustainable income.

Merrill Lynch’s study found that growth stocks outperform when interest rates falling. Another study found that growth strategy is more effective when GDP is declining.

Dollar-Cost Averaging (DCA)

This strategy is one of the best investment strategies. When investors follow the Dollar-Cost Averaging strategy, they regularly buy and sell stocks, bonds or other securities. Whether the market situation is good or bad, they continue to invest. Because of this continuous investment they monitor the market situation very well. They stay updated about the market.

They have proper idea about the ups and downs of the market. The idea of ​​when the stock will rise or fall is also very clear. As a result, they get a much higher return on investment.

How this strategy works? Many of us invest money every month in investment accounts such as 401 (k) or IRA. We invest in mutual funds through these accounts. When the price of shares, bonds is low then we can buy more shares and bonds. Again, we can buy less when the price goes up. Although we are buying and selling more or less, we are constantly investing.  This is the Dollar-Cost Averaging investment strategy.

One of the advantages of this investment strategy is that those who follow this strategy can survive in the market for a long time. But those seasonal traders mean they buy when the share price goes up and don’t buy shares when the price goes up. They cannot last long in the market.

I always support this investment strategy. Most investors follow this strategy. However, this strategy is not very effective for those who have lump sum investment. They need to do a lot of research before investing.

Vanguard has shown in their research that investors who are primarily concerned with minimizing downside risk and can control their emotions due to market downturn should follow this strategy.

Related Article –  How to Start Investing in Stocks: A Beginner’s Guide

Income Investing

Many investors want steady income flows even if they make less profit. Steady income flow helps in maximizing profits. In this case, bond is the best option. Bonds will pay you regular interest. This is why bonds are called fixed income security. Through this you can make profit at low risk.

Buy and Hold Investment Strategy

If you want to be successful by investing, you have to have consistency in investing. Expected outcome will not be achieved from portfolio investment without consistency.  It can also be called investment discipline.

When investors buy shares and hold them for a long time, it is called buy and hold investment Strategy. This is also a very effective strategy. Such investors are not easily intimidated. One of the main reasons for losing by investing in the stock market is panic. When the market collapses, these panicked investors leave the stock in their hands. As a result they face huge loss.

The buy-and-hold approach helps long-term investors increase their profits. Many times the market is seen to downturn for several consecutive years. Again, when the market turns around, the market rises for several years in a row. So those who can hold the shares for long time get benefited.

Investment Tips

  • Goals must be set before investing. Invest according to your financial situation and know how much risk you are willing to tolerate.
  • It is necessary to study the financial condition of the company and whether the shares of the company will grow in the future. Don’t invest in a company whose financial position is fragile and whose share price is unlikely to rise in the future.
  • You should not make unplanned investments. Don’t invest in a mutual fund on which you have no idea. Of course, invest wisely and with proper planning.
  • Don’t invest if someone tempts you to make a lot of money in return for investing less money. Most of these are deceptions.
  • Before investing in any asset, you must know the terms and conditions.
  • Don’t put all your eggs in one basket so investment must be diversified. Always emphasize on portfolio investment. This will reduce your investment risk.
  • Don’t invest in companies that want to give you a profit of over 12% a year. Because in reality it is not possible to pay such higher dividend, so do not fall in danger by investing in these scam shares.
  • Taxes can take a large chunk of your income. So invest in the sectors where you will get tax benefit such as Roth IRA, 401k.
  • If you want to invest in short term, you can invest in savings account, certificate of deposit or short term money market instrument. Stock, bonds are the best option for long term investment.
  • You can purchase US Treasury Securities or AAA rated bonds for safe investing.
  • If you want to earn a good amount with a little more risk, then invest in a high-yielding bond. The higher the risk, the higher the interest rate.
  • Educate yourself before investing. Do a lot of research.
  • Investment must have Consistency. If you want to earn in the way of shortcuts, you can’t earn too much. You need to invest regularly. For example, if you continue to invest 10% or 15% of your income in 401(k)s and IRAs continuously for 20 or 25 years, then one day you will see that you have become a millionaire.

Summary

There are several investment Strategies

  1. Value Investing
  2. Active Strategies
  3. Growth Investing
  4. Dollar-Cost Averaging (DCA)
  5. Income Investing
  6. Buy and Hold Investment Strategy

Value investors are those who prefer to buy at a lower price by bargaining. They always want to buy shares that are undervalued. Such investors do not like to spend much time in market research or the financial condition of the company is not very important to them.

Active investors want to make a profit by investing in the short term. Growth investors do fundamental analysis before investing.

Growth stocks strategies outperform when interest rates falling. Another study found that growth strategy is more effective when GDP is declining.

Dollar-Cost Averaging is one of the best investment strategies. These investors regularly buy and sell stocks, bonds or other securities. One of the advantages of this investment strategy is that those who follow this strategy can survive in the market for a long time.

Those investors who want a steady flow of income can follow income Income Investment strategies.

When investors buy shares and hold them for a long time, it is called buy and hold investment Strategy.

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