Guest Post
Reaching a point when you can grow your money via investments is an exciting time. But there are many factors that affect investors’ decisions. These are normally guided by investment strategies, which are influenced by investment goals, risk tolerance, and your future needs for capital.
There are three basic types of investment strategies: growth investing, income investing and value investing, with the greatest thing separating them generally being the level of risk involved. Many younger investors have greater tolerance to risk as they can bank on having more time to make up losses, while investors closer to retirement may favour a conservative approach that’s protective towards their assets.
The basic investment strategies
Growth investors look for companies in markets that traditionally have high earnings and take risks buying stock from promising start-ups in the hope that the companies will grow into industry leaders. Value investors, by contrast, search for stocks that might have been overlooked by the market. Undervalued as opposed to low priced, these stocks represent a good deal to savvy investors. Income investing is a more conservative strategy that targets companies that consistently pay out high stock dividends.
Most investment strategies have risk guidelines that separate the risk averse from the moderately tolerant. Someone who is risk averse will prefer transactions with lower risk, even if it means losing out on higher rates of return. Research has indicated that investors who prefer this type of trading generally stick to index funds and government bonds.
Investment strategies aim to balance risk with reward through asset allocation, using an investor’s assets and unique risk tolerance profile to deliver returns. All assets – equities, fixed-income and cash and equivalents – represent different levels of risk and behave differently, hence the complexity of allocation.
Finding winning investments
Very rarely can investors pick stock market winners by intuition. Following set goals and guidelines has proven to be a far more successful method. Many investors choose to research companies within a certain industry or within certain financial criteria. Owing to the large amount of information that’s freely available today, it’s possible to find company information including financial data such as total and net assets, turnover, profit and stock information by using a business directory.
There is no one strategy that is fool proof. Developing investment strategies is as much about understanding the investor’s strengths and weaknesses as it is about understanding the market. For example, a person who is good at research and analysis will be good at finding opportunities in company accounts, and know when to buy and sell.
Becoming a good investor means not only developing an investment style but also learning how to process large amounts of company information. By first understanding asset allocation and risk guidelines, and second processing company data, you too can leverage the stock market to your benefit.
This article is brought to you by Duedil, the largest database of free company financials in the world.
