What are different types of Investment strategies ?
Investment planning is an essential aspect of every individual’s financial stability. In order to fulfil the needs & goals, there should be an adequate plan in place. One should have investment strategies that can help in achieving different financial goals. Investment strategies are strategies that help investors in selecting where & how to invest. Computation of investment strategies is dependent upon factors such as risk capacity, expected returns, long-term goals, short-term goals, required corpus amount, retirement age, etc.
There are various types of investment strategies that investors can adopt. Let’s look at the same:
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Investment strategies
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Explanation
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1. Growth investing strategies
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Growth investing refers to allocating the capital towards companies that have a higher potential to grow in future as well as proven better performing in recent years. Investors invest for the longer term if they believe the company will create value in the longer term whereas, investors will invest in the short-term if they believe the company will do well in 2-3 years.
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2. Active & passive strategies
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Active strategies involve frequent buying & selling of securities as active investors believe that they can outperform the market. On the contrary, the passive strategy involves buying & holding as they believe that they cannot outperform the market; so, they invest for a longer-term and let the investment grow. A passive investment strategy is less risky in comparison to an active investment strategy.
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3. Income investing strategy
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Income investment strategy involves generating cash income rather than just increasing the value of the investment. One can earn cash income through dividends or fixed interest on investment. One can earn dividends on the stock of the company or mutual fund whereas, interest income can be earned by investing in fixed income instruments, bonds, or debt mutual funds.
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4. Value investing strategy
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Value investing strategy entails investing in companies that are undervalued and have the potential to grow in the future. This investment approach involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investing needs own research by analysing the fundamentals of the company, which requires adequate knowledge. One can invest through a mutual fund, which adopts the value investing strategy.
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5. Indexing strategy
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Indexing is a passive investment strategy where you construct a portfolio similar to the specific market index. One can invest in index funds or ETFs, which matches the returns with the underlying index.
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6. Dividend growth investing strategy
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Dividend growth investing strategy involves reinvestment of dividends received from companies. Investors lookout for the companies, which consistently pay out dividends. Reinvesting the dividends received helps investors to get the benefit of compounding.
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7. Contrarian investing strategy
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Contrarian investing strategy involves investing going against the market trend. Invest when the market is falling and sell when it is rising. While markets are falling, investors prefer investing in value companies that can build value when the market recovers.
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Investors should adopt strategies that help them in achieving their financial goals. They should thoroughly assess their financial goals, risk appetite, investment horizon, and expected returns before planning any strategy for investment.