Which of These Top Investing Strategies and Styles is Best for You?
The best investing strategies are not always the ones that have the greatest historical returns. The best strategies are those that work best for the individual investor's objectives and risk tolerance. In different words, investing strategies are like food diets: The best strategy is the one that works best for you.
Also, you don't want to implement an investment strategy and find that you want to abandon it for some hot new trend you discovered online. Don't get confused by all of the too-good-to-be-true flavors of the month. Stick to the time-tested basics.
To use another familiar metaphor, investing styles and tactics are like the clothes that fit you best. You don't need anything expensive or tailor-made; you need something comfortable that will last a long time, especially if your investment objective is long-term (10 years or more).
So before making a commitment to anything, whether it be food diets, clothes, or investment strategies, see which works best for your personality and style. You can start by considering the top five investing strategies which are shown below, some of which are theories, styles or tactics, which can help you build a portfolio of mutual funds or ETFs.
Best Investing Strategies: Growth Investing
We begin with growth investing using fundamental analysis because it is one of the oldest and most basic forms of investing styles. Growth Investing is an active investing strategy that involves analyzing financial statements and fundamental factors about the company behind the stock. The idea is to identify a company whose business metrics shows evidence of the potential to grow substantially in the years ahead. This style of investing looks to construct a portfolio of 10 or more individual stocks, rather than selecting an index fund.
It can be considerably time-intensive for a beginner to do enough quality research to be successful at this investing strategy; however, this strategy, or a variation of it, is the bread-and-butter work that most professional fund managers do to generate returns in their line of work.
Growth stocks typically perform best in the mature stages of a market cycle when the economy is growing at a healthy rate. The growth strategy reflects what corporations, consumers, and investors are all doing simultaneously in healthy economies--gaining increasingly higher expectations of future growth and spending more money to do it. Again, technology companies are good examples here. They are typically valued high but can continue to grow beyond those valuations when the environment is right.
Data from the financial statements is used to compare with past and present data of the particular business or with other businesses within the industry. By analyzing the data, the investor may arrive at a reasonable valuation (price) of the particular company's stock and determine if the stock is a good purchase or not.
Best Investing Strategies: Active Trading
Active Trading is very difficult. Less than five percent of those who attempt it have any reasonable measure of success at it, and less than 1 percentage of traders manage to have stellar returns, but those who do manage to achieve such returns can make a tremendous amount of money. The tool most frequently applied in active trading is some form of technical analysis. This research tool focuses on the changes in price of the stock, rather than in the measurements associated with the underlying business. As such, traders can profit from much shorter-term moves and have the opportunity to employ leverage with their strategies.
Traders can work on any time frame from months, to days to minutes or even seconds. They often use price data from exchange feeds or from charting platforms to recognize recent price patterns and correlated market trends. They use these in an attempt to predict future price movements. Since no indication is infallible, a trader must establish parameters for acceptable levels of risk, reward and win-loss rates for their trading. While technical analysis may be the primary tool for active traders, and fundamental analysis may be the primary tool for growth ...
Kent Thune is the mutual funds and investing expert at The Balance. He is a Certified Financial Planner, investment advisor, and writer. He is a financial professional that helps individuals and businesses achieve their goals through a variety of delivery methods, including investment advice, financial planning and writing. He has been providing investment advice and financial planning services for clients all around the U.S. for 20 years, with more than 10 of those years at his own firm, Atlantic Capital Investments, LLC, based in Hilton Head Island, SC.