By Subhasree Nag
Generally, investment strategies are principles you follow to keep track of your investment decisions. In fact, when you want to buy stocks as a beginner or make another investment, you can find the industry overwhelmingly complex. To ensure you stay on track and do not make a wrong move, you must have an investment strategy.
In this article, you will learn about essential investing strategies for beginners. This will help you grow as an investor. Moreover, this article will also guide you on how to make investment strategies for yourself. Hence, to learn more, read on to the end of the article.
Importance of Developing Investment Strategies
With the advent of the internet, you will find countless investment plans, strategies, and theories. Hence, it is easy to get overwhelmed and uncertain where to start your investment journey.
Therefore, you must get hold of a few stock market investment ideas and some basic investment strategies. This will help you lay a strong foundation from the start.
Understand that the best investment strategies will increase your money. Contrarily, it will decrease your risk exposure. Moreover, this strategy will also vary depending on what investment goal you have for the long term.
Apart from that, you must also consider your investment timeframe, that is, when you will continue investing. Furthermore, it would help if you also determined your risk tolerance. This will enable you to invest consciously at all times.
However, it does not mean that you will stick to only one investment strategy at a time. For instance, many investors combine multiple investment strategies before they invest. In fact, you can create your personalized strategy to fit your investment goals and your current situation.
Top 9 Investment Strategies for Beginners Investors
Firstly, you must understand that a good investment strategy will minimize your risks. Apart from that, it will also help you optimize your investment returns. However, no matter what strategy you use for your business, you must ensure that you do not end up with a short-term loss.
This can be a big possibility if you invest in securities like stocks and bonds. Hence, you must consider diversifying your portfolio from the start. Apart from that, make sure to have other finances before you start investing.
Understand that a good investment strategy will never promise you a “get rich quick” scheme. Hence, you must begin investing with realistic expectations. Basically, get a good idea of what you can and cannot achieve.
The following are some essential investment strategies you must consider if you want to start investing as a beginner:
1. Buy-and-Hold
As the name suggests, the buy-and-hold investment strategy involves buying a form of investment and holding it for better returns. Basically, such types of strategists believe that their investments will perform over many years.
In fact, you must not make rash decisions if the market slows down or drops for some time. In such situations, if you are confident with your investment, you must hold it until the market gets back to its general course. However, in this situation, you must have full conviction that your investment will give you a long-term return.
In this strategy, you have to carefully research and evaluate your investment options. Here, you need to be fully sure that your investment will be profitable for you in the long term. Apart from that, once you do the initial work, the buy-and-hold strategy saves you a lot of time.
2. Index Fund Investing
You can either have an active approach to investing or a passive approach. Apart from that, investments themselves can be active or passive when you are deciding which type of funds you must invest in.
For instance, when you want to diversify and populate your investment portfolio, you use mutual funds, exchange-traded funds (ETFs), and mutual funds. This is because these funds allow you access to a diverse collection of securities. Basically, these securities include stocks and bonds through one vehicle.
In fact, with the help of index funds, you can diversify your investment portfolio. This way, you are spreading your investment risk across different securities. This will help you to balance volatility.
3. Growth Investing
In this case, you buy shares of emerging companies by knowing that their value will grow at a faster pace than the average. Generally, these companies include those that offer unique products and services which others cannot duplicate. However, in many cases, investors are not sure about growth stocks.
Despite that, the most important aspect of why investors consider these stocks important is that their value might grow faster than other companies. Hence, the investor will end up making extensive profits. Mostly, new technologies fall into this category.
4. Dollar-Cost Averaging
One of the major challenges that you might face while timing the market is that you will not get it right consistently. Hence, if you are tired of trying to time your market entry, consider dollar-cost averaging.
If you use this investment strategy, you can find your way into the market by spreading your stock. Or, you can do that by purchasing funds with time. Here, you buy the same amount at all times. Hence, as you purchase more shares, you can smooth out the purchase price with time.
5. Income Investing
Every investor wants a steady source of income. You can achieve that with the right investment strategy. In fact, many investors do “income investing” to cover their living expenses. This can help you a lot when you are transitioning into retirement.
Basically, there are different types of investments with the help of which you can produce income. Some include dividend-paying stocks, bonds, CD ladders, real estate, etc.
6. Retirement Account
A simple way to start investing is to keep your money in a retirement account. For instance, if you have a retirement account through your employer, you must first contribute. Then, you must ensure to qualify to match the company’s limit.
Then, you can start funding an outside account for your retirement. Generally, these include the individual retirement account or IRA. In most cases, employer match programs include free money. Hence, you will not want to leave them on the table.
Apart from that, the 401(k)-retirement account offers you only a few investment choices. Hence, you have fewer options to create an investment strategy. On the other hand, the IRA offers you more access to investments than what 401(k) offers.
7. Active Investing
In this case, you find opportunities to trade more frequently so that you can make the most of market fluctuation. For instance, in this case, a stock trader uses technical analysis to get an idea of market prices.
In addition to that, you can also use a variety of strategies on the basis of pricing. Some processes include swing trading or spread trading. Apart from that, many investors also use momentum and event-driven strategies.
8. Value Investing
This is an investment strategy with the help of which you can bargain how much you want to invest. In this case, you purchase a stock that you believe is undervalued but has long-term prospects. Hence, as the company achieves its true potential after a few years, then you can reap your rewards.
However, value investing requires a lot of research. Moreover, you have to watch the market continuously to find clues. Furthermore, you must also have a good idea of undervalued stocks.
9. Socially Responsible Investing
As an investor, you would definitely want to contribute to social issues. With socially responsible investing (SRI), you can create a positive change in society. Meanwhile, you can also generate positive returns. Apart from investment performance, as an SRI investor, you must look into the business practices of a company and its revenue sources.
Basically, you must make sure that the company’s long-term goals align with your personal values. In fact, many investors direct their investments towards issues that they care about. The best part is that you are investing your money in the long term.
Risks of Investing for a Beginner
Here are some risks you must be aware of if you are investing as a beginner:
- Beginner investors can jump into an investment without considering the basics.
- Investing in penny stocks from the start and not understanding volatility.
- Urge to go all in with one investment.
- Beginners also make the mistake of not diversifying their investment portfolio from the start.
Follow These Investment Strategies Now
Now, you know about nine effective investment strategies. Once you follow them, you can create a strong investment portfolio. However, no matter what strategy you choose, you must research extensively before you invest in a company or any other security.
Do you have more suggestions on what investment strategy to follow? Please share your ideas and opinions in the comments section below.
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