Learn of the different types of investment strategies including sector, style, value and cost averaging that can help to maximize portfolio returns.
All these strategies focus on analyzing the risks and returns of different types of investments. They take advantage of prevailing market conditions or different events to maximize returns and to avoid losses. The common investment strategies include sector, style, stable value, value averaging, averaging and global strategy.
The Different Types of Investment Strategies:
This involves the analysis of a particular industry such as energy. There will be lack of diversification when the sector investing strategy is used. If the demand for energy increases, funds will increase significantly. If there is decrease in demand on the other hand, you will suffer huge losses.You should use smart strategies to build a portfolio that will bring higher returns over a period of time.
It is difficult to choose stocks for individual investors. Style strategy involves choosing from broad categories of securities based on your risk tolerance. For example, investing managers can choose to invest in the emerging markets, international markets, mutual funds, bonds, growth stocks, etc. They seek the best asset allocation to maximize returns. They also mix long term and short investments to coincide with liquidity needs. This type of growth investing looks at underlying characteristics that are common to some types of investments. This investing strategy makes things so much easier than if you had to choose from thousands of investment options available.
In this investment strategy type, an investor seeks short term guaranteed investment contracts and short term fixed income securities that insurance companies issue. Asset classes also matters here as well as exchange traded funds. He does this whether he buys stocks or alternative investments. The long term options can be risky asset management. This is very attractive to investors who want to be protected their large or small business from price volatility and those who want high short-term income.
This is a strategy whereby the investor can adjust the amount of money invested at different times. Your financial advisor will guide you in this regard. For example, if you invest $300 every month, you can invest $350 this month and then invest $250 the following month. The total value at the end of two months will be $600. This is the same amount that you would have if you invested $300 for two months.
Dollar Cost Averaging
Averaging of dollar cost is when an investor commits to investing a certain dollar amount at specified time intervals. In most cases, the time interval is a month. An investor will be able to buy more shares when the price declines. When the prices go up the investor will buy fewer shares. He makes investment decisions bases on company’s risk tolerance, growth potential, dividend growth and portfolio volatility, etc.
Global Strategy for Different Investments
This investing strategy helps investors to build in any country a diversified portfolio of securities including bonds and stocks. The investments can be in any country in the globe. The global money managers can decide to concentrate on particular sector or style if they think that is how they are going to get maximum returns. This is different from international strategy. Intentional strategy includes securities in any other country other than the home country. An investor with personal finance can get a financial adviser to invest his mutual funds on the stock market. He can manage a portfolio of short or long term investments with variable and fixed income.