Welcome to Investment Strategy!
No investments should be made unless they are in alignment with a previously charted investing strategy. After all, as they say, money doesn’t grow on trees, and when you are putting your earnings into an investment, the move should be a strategic one. Investing strategy, is, of course, always geared towards profits, taking risk into consideration and balancing the two for the best possible results.
What is an Investing Strategy?
It is not always possible to accurately predict how a particular investment will do, but an effective investing strategy can help you maximise the chances of profit, while minimising risk. Essentially an investing strategy takes various aspects into account, from profits and risk to market factors and forces of demand. It bears long term investment goals in mind, and directs the process of investment towards the maximum possible profits. The main consideration when it comes to an investing strategy is, however, the relationship between the risk involved in the investment and the profits likely to accrue from it.
Calculating Your Investing Strategy
You can use this mathematical expression to calculate the possible returns on a particular investment, and thus formulate a sound investing strategy. You need to calculate the value Vf/Vi - 1 where Vf refers to the final value of your investment, and Vi refers to the value of your initial investment. Your ROI or return on investment will be considered advantageous when Vf/Vi - 1 > 0. This is very useful when you want to create an effective investing strategy.
Types of Investing Strategy
Investment strategies can be categorised in different ways. One way of looking at an investing strategy is to classify it as a passive investing strategy or an active investing strategy. An active investing strategy is an offensive tactic where risks are higher, as are the rewards for investment. There are a lot more decisions to be made here, such as when to buy or sell. This is not the case with a passive investing strategy, which is also known as a buy and hold investing strategy. A passive investing strategy is a defensive strategy with less risk and lower rewards than active investment. Small investors are generally better off with a passive investing strategy.
Investing strategy can also be classified on the duration of time involved. How soon will your investment yield returns? It depends on whether your investment is a short term or medium term one. Different investing strategies are used for short term and medium term investments, and they can be applied appropriately when you are planning your investments.
Planning Your Investing Strategy
It is important to ensure that your investing strategy is directed towards the creation of a stable investment portfolio. There should be enough passive investment that acts as a firm foundation for profits.
Diversification is also an important investing strategy, whose effectiveness has been proved over the years. Allocating all your resources to one type of investment or investing in a single enterprise does not make financial sense, when you consider the risks involved. So a profitable investment portfolio is one where investments are diverse, and well balanced.
How to Enhance Your Investing Strategy
There is always room for improvement as far as an investing strategy is concerned, and you will find the following suggestions useful in creating a better investing strategy that results in good dividends.
One sensible investing strategy concentrates on planning for the future. You will not work all your life, and you must have a retirement fund that will see you comfortably through your later years. This needs to be planned carefully, after establishing your investment goals. Your actions should be directed towards the achievement of these goals, and you will need to modify your investing strategy as and when necessary.
Another effective investing strategy is to invest in areas that you are familiar with. For instance, if you know how a particular business works, and understand factors such as market forces involved, the competition, marketing and so on, it makes sense to invest in such a business.
It is always better to err on the side of caution, and your investing strategy should take this into consideration. Do ensure that you do not invest more than you can comfortably afford.
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