The first thing you should know is that investment strategies are very flexible.
You can switch at any time if something no longer suits you, but you have to keep in mind that doing so can be expensive. Try looking at some finance companies equipped to help you if you need extra help.
Here we’re going to talk about the four best investment strategies that most investors use. Take time to read through them, to better understand how they work and apply them to your investments.
Strategy 1: Value Investing
Value investors are always looking for good bargains. They usually buy stocks that they deem undervalued.
This type of investing is based on the idea that there is some irrationality in the stock market. The irrationality provides a chance to buy the stock at a discounted price and then make money from it later.
Value investing is a time-consuming strategy because you have to troll through a lot of financial data to find the right deals. There are value mutual funds that allow investors to have a basket of stocks that they consider undervalued.
I mentioned previously that investors could change strategies when they please, but this is especially risky for value investors. A lot of investors leave this strategy behind because it has considerably underperformed in recent years.
Strategy 2: Growth Investing
Conversely, to value investors, growth investors look for investments that show potential for substantial upside on future stocks.
Similar to social media, the growth investor will look at the future ‘big things’ that can become trends and earn money later.
That being said, this strategy is not reckless and involves evaluating the stock’s health and its future potential.
A growth investor must consider the industry in which the stock is in. Research is critical and having evidence of a growing appetite for such stock or company (e.g. AI, Tesla) is key if you want to invest in it and return a profit.
This is quickly done by looking at a company’s history, which should always show growth. Consistent growth is usually a good indicator of future performance and potential for investments.
However, sometimes growth investment can be a bit limited due to a lack of control over dividends.
Growth investment is among the best investment strategies for those who are good at predicting future trends because it makes it easier to spot good opportunities that no one else might consider.
Strategy 3: Momentum Investing
Momentum investing can be very risky. These types of investors think that winners will keep winning, and losers will keep losing.
They only buy stocks that are trending up, and if they see the stocks start to drop, they sometimes short-sell. Short-selling refers to the selling of a stock that the investor thinks may decline in value.
This is risky for new investors because it dramatically limits the maximum potential gain and exposes the investor to potentially unlimited losses.
Momentum investors rely on a data-forward approach in trading and look for patterns in stock prices before making a decision.
Strategy 4: Dollar-Cost Averaging
The final strategy to round up our list of the four best investing strategies is dollar-cost averaging (DCA). DCA investors make regular investments over time, and this can be set up automatically, so every month, you can put a selected amount into the investment account.
The disciplined approach to investing is compelling and easy to commit to because you don’t have to check it continuously. This strategy avoids the negatives of market timing as the investor covers prices from low and high levels.
Periodic investments, on average, lower the price per share of the stock. Using a DCA requires three parameters:
- Total sum you want to invest
- The period during which you will be investing
- How often you will make purchases
DCA is one of the best investment strategies for those who wish to avoid most investing risks.
Always do your research before deciding to invest. Assess risks, because whenever you invest your capital may be at risk.
Perhaps start with smaller investments and only go big when you fully understand the consequences and have more experience. Until then, this article should have helped you with a basic understanding of the four best investment strategies.