The right investment strategy depends largely on your unique financial situation, goals, risk tolerance, age, and other factors. Finding one that works for you will help you grow your wealth over the long term, e.g.
- Draw a personal financial roadmap.
- Evaluate your comfort zone in taking on risks.
- Consider an appropriate mix of investments.
- Be careful if investing heavily in shares of the employer’s stock or any individual stock.
- Create and maintain an emergency fund.
Your financial goals will help shape your investment strategy. Most investors have an eye on retirement because it marks a big financial transition. Instead of earning a paycheck, you’ll be drawing income from your nest egg, possibly for decades.
Types of Investments
To choose an investment strategy, you’ll need to know how different types of investments work. Here are some common types of investments.
Individual Stocks
Stock shares give investors an ownership stake in publicly traded companies. Their value tends to go up and down with regular market activity and company performance, but the goal is to buy stocks when prices are low—then sell them for more than you paid. Timing the market to the best of your ability is always a best guess. It can also be tempting to sell during market downturns.
Bonds
Bonds are generally safer investments than stocks. To buy a bond is to lend money to the government entity or company that issued it. The investor is then fully repaid, with interest, upon the bond’s maturity date.
Real Estate Investing
Those who want to play landlord can buy an investment property and rent it out to tenants. Another option is buying and flipping properties. Either way, investors should prepare to have a pool of cash on hand to cover repairs and other necessary maintenance costs.
Investment Strategies
Once you know the different types of investments, you need to figure out what to do with them. The following are different strategies to consider.
1) Buy and hold: This approach involves having an investment over the long term in the hopes that its value will increase over time. Buying and holding, is the opposite of selling off investments during market downturns. It can also save you in taxes: Capital gains tax.
2) Growth investing: This investment strategy zeroes in on stocks that are expected to be more valuable in the future than they are today.
3) Value investing: Unlike growth investing, value investing is about buying stocks that investors believe are currently undervalued. The hope is that stock prices will increase once the market recognizes their authentic worth.
4) Passive investing: Index funds are an example of passive investing. These low-cost mutual funds or ETFs track a specific market index, investment trend, or sector.
