How To Pick the Smartest Investment Strategy for Your Money
Choosing the best investment strategy for you will depend on how much risk you’re willing to take, how much money you’re willing to put on the line, how experienced an investor you are and what types of investment products you want to invest in. No matter what type of investor you are, there’s a strategy that will fit your unique personality and investing goals. Here’s a look at five different investment plans, and how they can benefit you.
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Fundamental Analysis
Best for: Conservative investors looking for low-risk stocks
Fidelity defines fundamental analysis as “a method of valuing a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors.” Using this method of investing requires a deep understanding of the value of an investment, and how the economy and other factors affect its value. To get this understanding, you will need to take the time to delve into a company’s financial statements and look at its revenue, expenses, assets, liabilities and other financial aspects.
Fundamental analysis is often considered the basis of sound investing, and if you are doing your own portfolio management, it’s important to employ this strategy before putting your money into any investment vehicle.
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Technical Analysis
Best for: Day traders, momentum investors making short-term investments
“Technical analysts study past price movement for the purpose of understanding what future prices may look like. They review charts of a particular company or index’s price action, and examine the changes in price over a particular period of time,” according to The Street.
To invest based on technical analysis, you should understand how to read the chart of a stock or index to note trends in price and volume, which can help you predict future trends. As an example, if you look at a stock’s chart and see that its price has dropped and risen several times without ever going higher — or lower — than $70, you could predict that it will not rise above, or sink below, that value.
However, this investment strategy is far from foolproof, with critics of this investment strategy noting that past trends are not always indicative of how a stock or index will perform in the future.
Value Investing
Best for: Conservative investors with a long-term outlook
Value investing is the strategy employed by some of the top investors, including Warren Buffett and Mario Gabelli, according to Columbia Business School. They also say this strategy is based on three principles:
- Always invest with a margin of safety.
- Rely on a system, not emotions, to drive decisions.
- Risk does not equal reward, but work equals returns.
This strategy focuses on investing in companies that are priced below their value, rather than investing in whatever stock is currently hot. Value stocks could include companies like John Deere and Walmart.
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Growth Investing
Best for: Investors ready to take risks in search of bigger returns
Growth strategy is the opposite of the value investing strategy. “Growth stocks represent companies that have demonstrated better-than-average gains in earnings in recent years, and that are expected to continue delivering high levels of profit growth — although there are no guarantees,” according to Merrill Lynch. Growth stocks are typically higher priced than the broader market, show growth regardless of economic circumstances and are more volatile than the broader market. Growth investing is suited for investors who are willing to invest more money and have a higher risk tolerance than the average investor. Examples of growth stocks include Facebook, Amazon and Alphabet.
Buy and Hold
Best for: Retirement investors, novice investors with limited investing experience
Buy and hold is a strategy employed by investors who care more about making long-term investments than getting short-term gains. This strategy involves keeping an investment over an extended period of time, based on the belief that prices will rise. The buy and hold strategy is the opposite of active trading, in which investors aim to continually buy low and sell high by timing the market.
If you’re not in it for the long haul, you might want to consider one of these short-term investment options.
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Last updated: June 30, 2021
