Investing strategies are designed to assist investors in making informed decisions about where and how to invest based on their risk appetite, expected return, corpus size, retirement age, long-term vs short-term holdings, industry preference, and other factors. The first thing you must do to achieve your goal is to decide within what timeframe you want to accomplish it. Additionally, you should ensure that you clearly understand your risk profile before making any decisions.
Selecting a fund strategy will also depend on whether you are a moderate risk-taker or a high-risk-taker and whether you are comfortable taking high risks. Today, there are a wide range of online calculators that are available to investors to calculate the maturity amount of investments in advance, similar to the gratuity calculator. As a result, the investor’s objectives and goals can be strategize to develop the best investment plan possible.
Listed below are some of the most popular types of investment strategies that you can use to make money
Active and passive strategies
It consists of buying and holding stocks instead of regularly trading in them as part of the passive strategy to avoid higher transaction costs associated with trading stocks. Several investors believe that passive strategies are less risky because they believe that because of the volatility of the market, they are unable to outperform it. However, active strategies are more likely to involve frequent purchases and sales than passive strategies.
To create value in their portfolios, investors choose the holding period according to the amount of value they wish to create. If investors believe that a company will grow in the coming years and the stock’s intrinsic value will go up, they will invest money into that company to build their corpus value. It’s also called growth investing. Conversely, if investors feel that a company can deliver good value one or two years from now, they will decide to hold on to the stock for the short term. Depending on the investors’ preference, the period of holding also varies.
In value investing, companies are valued according to their intrinsic value since the stock market undervalues them. Investing in these companies is based on the assumption that when the market goes through a correction, its value will be corrected, and when it does, its price will rise, giving investors high returns on their investment.
In these types of investment strategy, you will focus on generating a steady stream of cash income from stock investments rather than investing in stocks that will only increase the value of your portfolio. For an investor to earn cash income, they can choose from two types: (i) dividend income from stocks and (ii) fixed interest income from stocks. It is one of the best types of investment strategy that is preferred by investors who want their investments to earn a steady income on a long-term basis.
Dividend Growth Investing
A dividend-paying stock achieves consistent dividend payments over the year, which is what the investor looks for in this type of investment strategy. As a result of consistently paying dividends, companies with a track record of increasing their dividend payout every year are stable and less volatile than those with a track record of paying dividends inconsistently. In addition, these dividends are reinvested by investors who benefit from the compounding effect over the long run because they are reinvested.
The purpose of this strategy is to provide investors with the opportunity to buy stocks of companies during times of down markets. It is a strategy focusing on buying at low prices and selling at high prices. As a general rule, downtimes in the stock market are associated with recessions, wartimes, calamities, and other times of difficulty. The point is, however, that investors should not just buy stock in any company during a downturn.
In these types of investment, the market correction resulted in a significant influx of retail investors, which resulted in significant gains being recorded on almost every listed stock following the correction. However, most of these stocks did not deserve the price inflation they experienced.
Many retail investors tend to buy stocks of well-known and talked-about companies without doing thorough research into their fundamentals and operations. A large number of people choose stocks solely based on speculative information that circulates in the market at the moment.