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Here are the best investing strategies to increase returns, minimize risk and meet your goals. The strategy vary depending on your end investment goal and its timeframe, your risk tolerance and how involved you want to be in choosing your individual investments.
Learn this widely regarded, easy to implement investing approach. You will (likely) beat 60 percent to 70 percent of active mutual fund managers investing with this approach, and this Nobel Prize winning theory is easy to set up and manage.
This is not a get rich scheme, but a practical investing approach anyone can implement, follow and administer for the long haul.
Does this sound like you?
- Are you worried about your financial future?
- Would you like a method to set up your finances for success now, and financial security later?
- Do you feel like you lack time and knowledge to properly manage your money?
- Have you made money mistakes in the past?
If you answered yes to any of these questions, this investing blueprint offers a solution to your money planning concerns.
Practically, we understand that beating investment pros is great, but even more important than that is understanding how to invest to reach your personal investment goals.
Here’s how you’ll benefit and what you’ll learn from this investing blueprint:
- These investing approaches helps you reach your financial goals.
- Enough investing knowledge to create your own investment strategy and avoid making poor choices.
- Explanations of common money terms, to increase your investing literacy.
- The skill to determine whether you need an advisor, and what to look for if you want additional financial guidance.
- An understanding of how you’ll respond to the ups and downs in the investing markets and, more importantly, how to invest so you’ll be comfortable and not racked with money worries during all economic scenarios.
- How to narrow down the field of investments into a manageable number.
- A clear picture of which investments to choose with sample portfolios to guide you.
- How to integrate your workplace retirement account with your other financial accounts.
- A plan to maintain your investment portfolio for the long term, in minimal time, so you’ll have the money you need for your financial goals, now and later.
With this information, you’ll have in hand a map for an investment approach that beats most professional active managers. But more importantly, you’ll learn to maximize your investment strategies and returns using research-based proven investing strategies.
What’s Your Investment Strategy?
The best strategies should help you meet your financial goals and grow your wealth while maintaining a level of risk that lets you sleep at night. The strategy you choose may influence everything from what types of assets you have to how you approach buying and selling those assets. This is where investment strategies come into play.
If you’re ready to start investing, a good rule of thumb is to ask yourself some basic questions:
* What are your goals?
* How much time until you retire?
* How comfortable are you with risk?
* Do you know how much you want to invest in stocks, bonds or an alternative?
Long-term investing is still the best way to beat the market, and these tips and strategies will help to put you on a path to financial success.
1. Active Investing
Active investors prefer trading more frequently and opportunistically to capitalize on market fluctuations. Stock traders may use technical analysis, the study of past market data such as trading volume or price trends, to help anticipate where market prices might go.
* Active trading includes different strategies based upon pricing, such as swing or spread trading, and can also include momentum and event-driven strategies.
* Momentum investing seeks to identify and follow trends currently in favor to profit off of market sentiment.
* Event-driven investing strategies attempt to capture pricing differences during corporate changes and events, such as during mergers and acquisitions, or a distressed company filing for bankruptcy.
2. Income Investing
Investment strategies can help investors achieve a particular aim; for instance, producing a steady income stream. Many investors use income investing to help cover their living expenses particularly when transitioning into retirement.
There are different investments that can produce income, from dividend-paying stocks to bond and CD ladders to real estate.
3. Value Investing
Made famous by investors such as Warren Buffett, value investing is the bargain shopping of investment strategies. By purchasing what they believe to be undervalued stocks with strong long-term prospects, value investors aim to reap the rewards when the companies achieve their true potential in the years ahead.
Value investing usually requires a pretty active hand, someone who is willing to watch the market and news for clues on which stocks are undervalued at any given time.
Think about it like this: A value investor might scoop up shares of a historically successful car company when its stock price drops following the release of an awful new model, so long as the investor feels the new model was a fluke and that the company will bounce back over time.
Grow your investment. Compare and contrast growth and value investing
Value investing is considered a contrarian strategy because investors are going against the grain or investing in stocks or sectors currently out of favor.
A subset of investors take value investing a step further by not just investing in cheaper stocks and sectors but purposely seeking out the cheapest ones out there to invest in so-called deep value
4. Growth Investing
Growth investing involves buying shares of emerging companies that appear poised to grow at an above-average pace in the future. Companies like this often offer a unique product or service that competitors can’t easily duplicate.
While growth stocks are far from a sure thing, their allure is that they might grow in value much faster than established stocks if the underlying business takes off. Growth investors are willing to pay a premium price for these stocks in exchange for their robust future growth potential. New technologies often fall into this category.
For example, if someone believes that home buyers are going to shift increasingly from banks to online mortgage lenders with a streamlined application process, they might invest in the lender they believe will become dominant in that market.
Investors can also look toward burgeoning geographies or companies to find growth. As they industrialize, emerging markets or developing economies usually are more volatile but also grow at a faster pace compared to their more-developed peers.
Companies are valued by market capitalization, or market cap, which is calculated by their total outstanding shares available times the market price of the shares.
Small-cap stocks, shares of companies usually valued at $2 billion in market cap or less, provide investors with greater potential risk but also greater potential return due to their faster growth trajectory.
5. Index Investing
While there are active and passive approaches to investing, there are also active and passive investments themselves when deciding between various types of funds.
Investors frequently use mutual funds, index funds and exchange-traded funds (ETFs) to populate their investment portfolio because funds provide access to a collection of securities, generally stocks and bonds, through one vehicle.
Funds allow investors to benefit from diversification, spreading investment risk across many securities to help balance volatility.
Active funds employ a portfolio or fund manager to handpick certain investments to populate the fund based upon proprietary research, analysis and forecasts.
The manager’s goal is to outperform the fund’s corresponding index or benchmark.
Passive funds, such as index funds and most ETFs, simply mimic an underlying index, providing the investor with similar performance to that particular index.
Some mutual funds have high expense ratios or high minimum investments (or both). But investors can often sidestep the highest of such costs by comparison shopping among mutual funds, or by favoring index funds and ETFs, which tend to offer lower expense ratios than actively managed funds.
Given the lower cost of passive funds and the arduous task of beating the benchmark facing portfolio managers, index or passive investing often delivers better overall returns over time.
6. Buy-And-Hold Investing
It’s always nice when things have a clear label, and you can’t get much clearer than “buy and hold.” Buy-and-hold strategists seek investments they believe will perform well over many years. The idea is to not get rattled when the market dips or drops in the short term, but to hold onto your investments and stay the course. Buy-and-hold works only if investors believe in their investment’s long-term potential through those short-term declines.
This strategy requires investors to carefully evaluate their investments — whether they are broad index funds or a rising young stock — for their long-term growth prospects upfront. But once this initial work is done, holding investments saves time you would have spent trading, and often beats the returns of more-active trading strategies.
7. Start with a new or existing retirement account
One way to begin investing is through a retirement account. Open or access an individual retirement account, or IRA, through a brokerage account. Then choose investments that are aligned with your goals.
If you already have a retirement account through your employer, it’s generally a good idea to contribute to that 401(k) first — and qualify for the company match — before you start funding your IRA. Employer match programs are free money you don’t want to leave on the table.
However, you should know that most 401(k)s offer relatively few investment choices, so the options for strategy within those vehicles are usually limited. Whereas IRAs give you access to a more expansive world of investments than your 401(k) may offer.
You can also trade through a brokerage account for long-term goals other than retirement.
8. Long-term investment strategies
Taking a buy-and-hold approach to investing is both the simplest and most dependable way to achieve substantial portfolio returns.
While most investors are best served by buying and holding stocks for the long term, the approach still leaves plenty of flexibility regarding which individual companies and investment themes to prioritize.
Here’s a breakdown of core long-term investing strategies you can implement.
9. Growth Investing
This approach focuses on companies that are expanding their businesses at fast rates and appear primed to continue generating impressive results.
Sometimes growth-oriented companies aren’t yet profitable or post small earnings, but the best companies display signs of substantial momentum and have high potential to increase their sales and earnings over time. Outsized growth can translate into big gains for a company’s share price.
10. Value Investing
This investing strategy centers on buying the stocks of companies that seem undervalued based on fundamentals such as revenue, profit margin, and competitive strength. Value-oriented strategies concentrate on buying stocks priced at low multiples of earnings or sales or those that pay attractive dividends. These tactics can reduce your investment risk while still creating opportunities for impressive portfolio gains.
11. Dividend investing
This investing approach prioritizes owning stocks that return value to shareholders in the form of regular cash dividends. A dividend-oriented strategy is often associated with value investing because it’s less common for growth stocks to pay dividends. But as a dividend investor, you can still choose to take a growth-focused approach by investing in companies that seem likely to continue increasing their dividends.
Dividend investing can be strongly oriented toward long-term investing by having all dividend payments automatically reinvested. Most brokerages can automate a dividend reinvestment plan (often abbreviated as DRIP), enabling you to harness the power of compounding. Using dividend payments to purchase more stock creates a virtuous cycle by increasing the number of shares in your portfolio that pay dividends. In turn, this increases the amount of dividends you receive. Over time, you can purchase more shares using only dividends.
Many investors opt for a mixed approach to portfolio construction, choosing to add a combination of growth, value, and dividend stocks. Each of these categories has something to offer a balanced portfolio.
12. Dollar-Cost Averaging
In addition to using growth, value, and dividend investing strategies for portfolio construction, investors can also take strategic approaches to how they buy stocks. A dollar-cost-averaging strategy involves making stock purchases at regular intervals over a long period of time instead of making large purchases all at once. As opposed to trying to precisely time the broader market or base purchases around specific stages or events in a company’s business cycle, dollar-cost averaging offers a way to minimize exposure to volatility and risk.
!3. Let Winners Keep Winning Investing
Knowing when to sell a stock is important even with a long-term approach to investing, but you shouldn’t be too eager to take profits on strong performers. Just because you’ve achieved strong returns with a stock over a five-year holding period doesn’t mean you should sell it. The next five years could be even better.
All companies will have their ups and downs, but strong businesses tend to keep winning over time, and competitive advantages and market opportunities can become even more pronounced and profitable if given time to flourish. Not every stock you buy will be a winner, but holding on to just a handful of strong performers will often more than make up for disappointments along the way. As famously successful investor Warren Buffett has said, “The weeds wither away in significance as the flowers bloom.”
14. Being a Foolish Investor
Market values always fluctuate and are essentially impossible to predict with certainty. As such, The Motley Fool’s investing philosophy eschews attempting to time the market and instead focuses on finding investments that can stand the test of time. Instead of trying to predict when the next crash or big bullish run is coming, investors are best advised to invest in companies with meaningful competitive advantages, strong management teams, and viable paths to long-term success.
Realistically assessing your risk tolerance is another Foolish component of long-term investing success. Some investment strategies may take longer than expected to generate profits — and not every stock you buy will be a winner. If you’re a younger investor, you might be comfortable investing in many relatively risky growth-oriented stocks. However, if you are retired or getting ready to retire, your risk tolerance is likely quite different.
If you depend on your investment portfolio to help support you in your nonworking years, then any sharp declines in your portfolio’s value are much more significant. Younger investors are more often growth investors, while older investors are more often value or dividend investors.
Portfolio diversification can be beneficial no matter how much money you’re investing, but it becomes increasingly important as you invest larger sums. Putting most or all of your money into a single stock can be catastrophic for your portfolio’s value if the stock’s price plummets. It could take years to recover the money you lose, or it may never be recovered. Spreading your investment dollars among many different assets in many different industries is key to reducing your investment risk.
Any company in which you invest should have a high-quality business and trade at a valuation that leaves room for long-term growth. If you understand a particular sector well and are knowledgeable about the current developments in the space, then it makes sense to invest more of your money in the sector. Investing in industries that you deeply understand makes you more likely to identify relevant developments ahead of most other investors.
13. Investment Strategies for Retirement
A patient, well-informed approach to investing can put you on the path to financial freedom and significantly improve your quality of life in retirement. Specialized retirement accounts are some of the most popular investment funds that can help you to achieve your financial goals.
Money that you contribute to tax-deferred retirement accounts, like most 401(k)s and individual retirement accounts (IRAs), reduces your taxable income for the year, although you must pay taxes on distributions received in retirement. Roth retirement accounts don’t confer immediate tax breaks but, instead, enable you to receive tax-free distributions in retirement.
Both types of retirement savings accounts have tax advantages. Tax-deferred accounts are best suited for people who expect to be in a lower tax bracket in retirement than they are today, while Roth accounts are preferable if you expect to be in a higher tax bracket when you retire.
Some employers offer contribution matching programs for 401(k)s and other retirement accounts. Taking full advantage of employer matching as early in your career as possible can significantly improve your investing performance over time and put you in a much better financial position in retirement. If you can afford to invest money to benefit from your employer’s retirement matching program, then your goal should be to maximize the matched contributions — e.g., the free money received from your employer.
Even if you follow all of the above advice, you always accept risk when you invest money in the stock market. But it’s worthwhile because not doing so actually guarantees that you lose money as inflation erodes the value of your cash. Don’t delay — make today the day you start increasing your wealth and building a path to long-term financial prosperity.
A. Long-term investment strategies simplify the stock market
There is an incredibly vast range of factors that can shape pricing trends for individual stocks and the broader market. In the short term, it’s possible that a company will deliver great business performance but still see its share price decline due to pressures shaping the stock market at large. However, if the company continues to serve up strong results, chances are good that its stock will eventually cut through market volatility and post strong returns. Long-term investment strategies help minimize the significance of the unknowable, and using these simplification tools can mean less stress and better performance for your portfolio.
14. Socially Responsible Investing
Social issues such as climate change and racial justice impact lives on a day-to-day basis. Socially responsible investing (SRI) aims to create positive change in society while also generating positive returns. In addition to investment performance, SRI investors look into a company’s business practices and revenue sources to ensure they’re aligned with their personal values.
Some investors employ SRI by excluding stocks of companies that go against their moral compass; for instance, they might exclude investments in “sin” stocks or tobacco- and alcohol-related companies. Others intentionally direct their investment dollars toward issues they care about, such as into renewable energy companies.
15. Principles of Investment Strategies
Whatever investment strategy you choose, it’s important to consider your investing goals. Where your investment style will fall in the following categories depends on many factors: Everything from your age to your finances and even your comfort level doing it yourself will help determine what your portfolio will look like.
Long-term goals vs. short-term goals
When investing for long-term goals — those five years or more in the future — it may make sense to choose higher-yielding (but more volatile) instruments like stocks and stock funds. But there are smart ways to pursue short-term savings goals, too. If you’re saving for a down payment on a house, you may want to place those savings in a more stable environment, like CDs or a high-yield savings account. Since you have a shorter time frame for your money to grow with a goal like this, there is less time to weather the volatility of the stock market.
Long-term savings goals, such as retirement, can handle the fluctuations of the market. Since those investments will be in the market for longer — provided the investor can stay the course when there are major changes in the short term — there is less need to worry about those shorter-term dips. These long-term investments are better served by a mix of stocks and bonds or stock mutual funds.
16. Popular Investment Actions:
* Don’t care about what is happening with markets today or tomorrow
* Don’t give a damn if your accounts are up or down in the short-term
* Buying and holding
* Adding money whenever you have it. So monthly or whatever is appropriate
* Being diversified but not overly so. Focusing on investing in 3–4 indexes.
* Have a small allocation to a bond index.
* If markets fall, rebalance from the bond index slightly. If they rise a lot, rebalance in the other direction
* Never dramatically changing the allocation just because markets are up or down
* Never take the news media seriously
* Never think this time is different
* Reinvesting dividends
* Not being taken in by stories about the next big thing
* The strategy should be about long-term success and not trying to see your account rising every month and year.
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