For an investment portfolio to be successful, a great, dependable investment strategy is required as its role is to provide a solid and sustainable plan that guarantees a portfolio’s profitability with the minimum risk associated. The lack of a good investment strategy results in impulsive and emotional trading – moving from one trade to another at the slightest possibility of profitability, only to end up making a loss.
This article provides an understanding on how to create an investment strategy with six possible types of investment strategies that you can use to build your wealth through investments.
How to create an investment strategy:
Firstly, assess your financial situation by considering your monthly income, expenses, savings, and debt. A good number of people start out with investing by opening a retirement account through their employers. You could decide to consider other investment options and take it a step further by investing for your child’s college education or just for an extra source of income. When you are able to set money apart for your investment needs after settling your regular monthly necessities, you can start with an investment strategy and put the money to good use.
Six kinds of investment strategies:
- Short-Term Investment Strategies
Short-term investment strategies are typically those that returns are expected within three years. Some investment options that are categorized under short-term investment strategies are cash management accounts, high-interest savings accounts, and short-term bonds. Short-term investment strategies are usually used when the funds are needed to cater for a not so far off event that may cost some money that may not be readily available.
- Long-Term Investment Strategies
This strategy has a timeframe of over three years and it encompasses investing in mutual funds, real estate, gold, and stocks. Investing using a long-term strategy produces a return on investment over several years and it can be a good way to go seeing that they usually have lower risks and higher returns associated in comparison to other kinds of investments.
- Active Investment Strategies
Using an active strategy, you will be regularly involved as an investor. One active strategy under real estate is known as flipping houses. Another is when you are in control of your own portfolio, making the decisions and making the trades, instead of having someone do it for you or working with a financial institution.
- Passive Investment Strategies
As an investor, you can go about your regular activities without necessarily having to get involved while your assets generate profits for you. Investing in a REIT, index funds, or rental properties does not need much involvement once you have done the work to establish it. Passive strategies could be used as a supplement for your regular income.
- High-Risk Investment Strategies
High risk investments typically come with high returns. This does not mean that you must pick high risk investments though. Do your research well before putting your money into this kind of strategy. An example is investing in a startup.
- Low-Risk Investment Strategies
Beginners usually start off with low-risk strategies because even though the returns may not be much, it is safer and you are not likely to lose your money. Such include bonds, savings accounts, and CDs.
You now know how to create an investment strategy and the strategies to choose from for a successful portfolio. Note that you should also diversify your portfolio to keep you from losing all your money in case one of your investments does not do well. Do your research and be consistent. You’ll reach your goal soon.