5 Most Important Investment Strategies For Beginners
Investing in stocks and shares used to be reserved for the wealthy people and traders in fancy suits, but that is no longer the case. The investing field has levelled out considerably, and now it’s possible for many more people in different walks of life to get involved.
That being said, it can still be quite daunting if you don’t have much experience in trading- while you have the potential to make a lot of money you could also lose a lot! That’s why it’s so important to have a strategy for how you manage your portfolio and investments.
Think about your goal – the reason why you want to have this additional income. Perhaps you are saving up for a holiday, a deposit on a property, or for your retirement. You will need a strategy in order to successfully build up these funds, and you will need a means to do so – i.e. the components of your portfolio.
If you have money to burn and enjoy the risk then it can be fun to invest in a more randomized way and see what happens. But if you want to take it seriously and make sure you get a return on your investment, then you will need a strategy. We have put together 5 strategies that are suitable for beginners to help you invest successfully. Keep reading to find out more.
One possible strategy you can use is value investing. This is where you look out for assets that are being sold at a price below their intrinsic value. If you’ve ever been to a flea market or a second hand store and spotted something being sold for much less than what it is worth and made a profit on it, you have already had a go at value investing!
You will need a keen eye to spot the stocks that have been overlooked and mispriced. It can be quite intense to begin with as you will need to do a lot of research and reading in order to understand the balance sheets and how they relate to the company’s likelihood of generating future cash flow.
If you are able to come to grips with this investing strategy then it is something you can implement indefinitely, guaranteeing you solid returns on your investment for years to come. But if this style of investing does not come naturally to you then don’t worry, there are plenty of others you can try.
Value investing involves being able to spot undervalued stocks, but growth investing is all about identifying future potential. The idea is to invest in a company while it is new and in the initial stages of development, so you can reap the benefits when it takes off and becomes a huge success.
There are several ways to spot suitable growth investments. Look out for fast growing companies in emerging markets. If a company has an above average increase in revenue or profit, this can be a good sign. They might also be getting a lot of press attention for causing a stir in an established market, or even creating a market of their own.
Don’t fall into the trap of investing speculatively simply because you ‘get a good feeling’ about a company – this is not a guessing game. There needs to be a solid business plan in place and clear evidence of a logical value proposition. Make sure you are not falling for a good pitch and investing in a second rate company.
To be successful in growth investing you will need to be able to think laterally to get a good idea of future pricing and how it relates to your current situation. This involves identifying trends and patterns while also having a good grasp of probability. It is not an exact science and you might not get it right all of the time, but it only takes a few wins to make a lot of money with this strategy.
If growth investing is catching the swell before the wave forms, then momentum investing is riding the wave and getting out just before it crashes. You buy stock that is already increasing in value, then sell it again when it reaches the peak of its value.
This strategy is based on statistics and probability and involves a strong ability to read market timing. It’s challenging and requires a skill for technical analysis and chart reading, but if you can develop those skills then this could be the strategy for you. It also comes with the added bonus of that classic investing adrenaline rush which some people love, and has always been associated with Wall Street and the stock market.
Meme investing is a more recent strategy which is considered by many to be a type of momentum investing. These stocks are gaining momentum rapidly because the relative products are being endorsed and advertised on social media by celebrities and influencers. This creates a guaranteed swell of interest which spreads from the hardcore fans, to the wider fanbase, to the outsiders who hear about the product and don’t want to miss out, until eventually everyone knows about it and wants to have one. The value will rise rapidly at first, then continue to rise gradually until the buyers dry up and it crashes hard. This makes meme investing a high risk and high reward strategy. It is another game of timing, but if you play your cards right then you could make a lot of money.
Impact investing is increasingly popular with millennials and Gen Z as it gives investors the opportunity to make a difference in the global community. Gone are the days when efficiency and productivity were the number one priority regardless of the ecological impact. More recently, environmentally sustainable wealth is what many people want.
Impact investors will put money into a collection of companies that are making a positive difference. They could be using green renewable energy or have no carbon footprint, use recycled materials for their products, or be working towards an important cause like medical research. These investments often pay off because people’s spending habits reflect the growing social conscience and concern about the environment, but it also has a wider impact by forcing other companies to look at their policies and make changes.
Income investing is different from growth, value, and momentum investing. Instead of trying to beat the market to maximize profits, income investors choose low risk, reliable investments to generate a steady income. Their portfolio is usually built around generating dividend or interest-yielding assets.
It takes patience to build up a lucrative income investment portfolio, but your patience will pay off, especially if you reinvest your dividends and take advantage of compounding. Income investing is a good way to slowly put money aside for your future, like a retirement fund or a college tuition fund for your children. Many income investors will look for well capitalized companies to invest in that pay large dividends, but there are options for investment like bonds, mutual funds, real estate, investment trusts and exchange-traded funds.
If you are new to investing, then you might want to set aside a portion of your portfolio for income investing and let your assets grow slowly while you use the rest of your portfolio to try out the other strategies. This also brings down the overall risk of your portfolio for a more balanced investment strategy.
There are so many different investment strategies and various ways that you can structure your portfolio. The best way to learn is with experience, and there are lots of resources available to help you educate yourself further on the art and science of investing.