Speak to investors and you’ll find everyone has their own investment strategies. Some are high risk, high return, while others prefer to build value slowly to minimise exposure to sudden shocks.
Some embrace new trends and new tactics, while many opt to stick to the tried and true methods that have yielded reliable returns over decades.
Here are some top tips for choosing investment strategies that work for you.
1. It’s a personal choice
Take advice from fellow investors, but remember at the end of the day, it’s a completely personal choice and not all investment strategies will suit you.
Even if they work in terms of making a profit, you still might not want to commit a large amount of your investment portfolio to specific methods.
It’s not worth investing at high risk if it means sleepless nights – and of course you should never risk more than you can afford to lose.
All of this makes your preferred investment strategy something that only you can decide, taking into account all of the recommendations received from your fellow investors.
2. Technical analysis
Some investors find technical analysis is the method that suits them, and this involves looking at the market to spot patterns and trends as they emerge.
Often the value of a stock increases in a recognisable demand pattern – and maximising your profit depends on spotting this and buying in early.
The more time passes, the more of the pattern emerges, and the more confident you can be. But other investors will be watching too so any delay can mean less of a profit.
3. Fundamental analysis
The counterpart to technical analysis is fundamental analysis – which involves checking companies’ financial statements to determine if they are undervalued.
You can see the immediate effects of this particularly when the market decides a company is overvalued, for example if a financial update reveals a heavy loss in profits.
This is usually followed swiftly by a ‘correction’ in the share price as investors sell in large numbers, and you might even choose to buy in at a low price if the stock becomes undervalued as a consequence.
4. Buy and hold
The longer you hold an investment in a reliable stock, share or market, the more likely it is to return its average long-term value.
Because of this, some investors choose to put some or all of their money into long-term holdings rather than trying to make a quick buck on day trading.
It’s a relatively low-risk technique, although of course there is still a chance of losing money if the market crashes, even after a long time of gaining value.
With a core of long-term investments, you can still invest in so-called ‘satellite’ stocks by diversifying to reduce your risk, or even invest a percentage of your funds into stocks you think will make a quick profit, while the bulk of your portfolio remains in place for much longer.
5. Value vs. growth
Finally, different investment strategies distinguish between value and growth when deciding the best time to buy a particular stock.
A value strategy involves buying in at the lowest price, with a focus on gains made due to the correction in an undervalued stock.
In contrast to this, a growth strategy recognises that the current market price for a stock might be fair or even relatively high, but predicts that it will gain value in the future.
By selling at a higher price than you buy in at, you can still achieve a profit with a growth strategy, even though you might think the stock is overvalued.
How to decide your investment strategy
You might have a clear idea about your preferred strategy, or it might be dictated by how much you have to invest and how long you can tie it up for.
If not, consider watching the markets for a while first and see which strategy you feel the closest affinity with.
You could make some sandbox investments just using pen and paper, a spreadsheet or a virtual investment app, until you’re ready to go ahead with a particular strategy.
Or you could invest small amounts using different strategies and see which yields the best returns during your own personal ‘trial period’.
Remember you’re not restricted to just using one strategy – there’s often overlap between them and opportunities to diversify your portfolio and minimise your risk by using multiple strategies, if you can keep track of them all at once.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.