– Aashimma Aggarwal (Class of 2022, IBS Hyderabad)
Investment in today’s scenario deals with high rate of return which is proportionate to the risk an individual is willing to take. For investment with higher returns the strategies used by the investor plays a crucial role. The more efficient and discovered strategies the investor uses, the possible expected return increases for the given level of investment. The best investment strategies are the ones which fulfill the objective of your investment and fall under your risk tolerance. A strategy which might be working well for an individual investor may fail for the other investor. The strategy one wants to opt should last longer according to the time period the investor is looking for.
Majorly there are seven types of Investing Strategies:-
- Growth Investing
The investment strategy which majorly focuses on increasing investor’s capital. The investors following such strategy invest in small companies as they are looking for a decent rate of return as compared to other large companies of the same sector.
Mostly it includes stocks which are lesser than their intrinsic value or book value and look for historical and future earnings growth, profit margins, rate of equity (ROE) and share price performance.
- Active Trading
This is a short term holding for the quick booking of profit as there are small-term movements in the price of securities. Although it is believed that Day Traders are Active traders, swing traders who are opening or closing their positions in a few days are also sometimes considered active traders.
It is one of the hard trades as to hold position for a short time requires a technical analysis research tool which helps in prediction of price movements thus leveraging the strategy used by the trader.
- Value Investing
The strategy in which the market news is taken into consideration and assumed that market overreacts to the good and bad news which ultimately lead to the price movements. The price movement is unrelated to the fundamental analysis information.
The investment is done by picking the stocks which are lesser than their intrinsic or book value.
- Buy and Hold
The investing strategy in which regardless of fluctuations in the market the investor buys and holds the securities for a longer period of time. Investors do not look for technical indicators and seek high term returns. It minimizes the trading cost and ultimately increases the portfolio value.
Equities are said to give more returns than assets for longer periods of time.
- Contrarian Investing
The investment strategy in which investor works against the market trend purposefully, that is, buying when most investors are selling and vice-versa.
They believe that market investors are selling because they lost their purchasing power, not because the markets are high.
The Contrarian believes that intrinsic value has not been touched by the market or stock yet.
- Income Investing
The investment strategy where a constant stream of additional cash is produced by putting together a portfolio of assets to maximize the annual passive income generated by the holdings.
This strategy is mainly adopted by retired people who require extra cash flow and generated returns could be used to live the livelihood.
- Indexing
This investing strategy is related to the market index and is a passive strategy. A market index is a portfolio of securities which is expected to represent the whole market. It does not involve any selection of security or trading; only the portfolio of securities which are defined by the index are purchased and held indefinitely by the investor.
CONCLUSION
It is always advisable to look for the capital structure you are ready to invest and then adopt a strategy. Never should an investor adopt investment strategies because of new trends found online. It is important to select the appropriate strategy to avoid losing capital as a consequence of wrong decisions taken.
Inefficient strategies lead to higher risk while rewards are low. On the other hand, efficient strategies provide adequate amounts of highest possible expected returns for the risk incurred. The more the investor sticks to the time-tested basics the best results are expected for overall net return.
REFERENCE
https://www.investopedia.com/terms/i/investmentstrategy.asp
https://bit.ly/3ATzaQC
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