Do you have money saved but don’t know where to invest or what strategy to follow?
Here you will know the different investment strategies according to your profile; we will show you the most recommended products, and you will know the most popular investment strategy you should know if you are one of those who invests in the stock market. Here you will learn how to define your strategy, which will determine which plan you will follow to achieve your goals.
Behind any action is an investment strategy.
Investment strategies are the plan for any action to generate money. With the strategy, the risk and the possibilities of losses are evaluated; some choose a more risky strategy and others a safer one.
Determine your profile to know your strategy.
If you don’t want to waste time before trying any investment strategy, determine your profile. Below, we will talk about several investment strategies according to your profile. To find out your profile, you should ask yourself the following questions:
- What is your knowledge?
- Do you have any preferences?
- What are your goals?
- What do you invest in? For fun or to get profitability?
- How much time can you spend on investing?
- Are you motivated by risk or just want to make money?
- Do you want short-term or long-term profits?
- What is your investor profile: conservative, moderate, or aggressive?
- Do you want a simple, elaborate, or intermediate strategy?
Once you have evaluated your personality as an investor, you will be able to know which investment product and strategy you should follow in order to make money.
3 investment strategies
You should know that there are thousands of investment strategies, and you don’t need to apply just one. Remember that the best investment strategy is the one that best suits your needs either in a short-term or long-term investment, or contract or accumulation. So the best thing is to identify your needs and compare strategies.
1. Investment strategy according to the term
Indexed investment funds and robo-advisors
Indexed investment funds are long-term investments that are based on replicating a certain index. They have been a novelty for a couple of years, and it is one of the strategies that most attract young people between 25 and 40 years old. It is cheap, does not require knowledge, and offers more than 2% profitability, reaching up to 6%.
Investments in peer-to-peer loans
Investments in loans are another novelty. Thousands of P2P platforms offer to invest in loans for any purpose.The risk is moderate; it does not require much knowledge but a little time.
2. Stock market strategies: trading
When trading, there are many trading strategies; also, on the stock market, you can buy all kinds of shares; the offer is very wide, and the number of companies where you can invest is incredibly extensive, so much so that it can be overwhelming and exhausting to know where to invest. Therefore, you should know the different strategies that will help you shape your path as an investor.
2.1 Operation by momentary trading or trend-following (momentary operations)
The operation of momentum trading among those who invest in the stock market. It’s about finding the best time to buy and sell. These are fashionable investments that everyone wants to have; you just have to follow the trend.
So, for example, you take advantage of the opportunity presented by the moment when the price of a share rises because the company generates profits or is continuously in the media, such as Amazon or Tesla. That is, you invest in the trending stocks and close the operation while following the trend. You get on the wave until it stops being a trend.
You must know the company’s situation well (through returns and in-depth analysis) to know when to enter and leave the operation; in other words, you must analyze the company, and the action continues. It requires a lot of time and training.
2.2 Operation by swing trading and day trading
This type of strategy, recommended for beginners, is based on buying a stock and keeping it for a fairly short period, whether a day, a week or a month. In the stock market, stocks always have ups and downs, which are called swings, and they always happen for a period of time. It is important that you perform an analysis of the company’s graph to be able to determine better and understand each company’s swings.
2.3 Contrary investments
Contrary operations are those in which you try to find moments of rupture that turn into countercurrent movements. The opposite investment strategy consists of buying shares or dividends from companies with a very low price and selling them later when the price increases.
It’s going against the tide and the opposite of the momentum strategy. This is the most recommended strategy if you invest in the stock market because, by default, the economic cycle of every company indicates that there are moments of great value and others of less.
Although it is important to know the type of company and a little about its level of growth since this cycle does not always work,It requires a lot of dedication and knowledge.
2.4 Indexing strategy
It is a practice in which, to earn money, you buy an amount of the same shares that follow a benchmark index (a “benchmark” in English; for example, the S&P 500 index), a mutual fund, or an ETF. The S&P 500 index is the index that covers the top 500 companies listed on the New York Stock Exchange and Nasdaq.
You must know which index you want to replicate and decide if you want to invest in ETFs, funds, futures, etc. You should also keep in mind the term of the investment since if it is for the short term, it will be an active investment (you will be able to buy and sell quickly) and require a lot of dedication.
If it is long-term, it will be a passive investment, and you will not need so much knowledge. Banks and insurers use this strategy to diversify their portfolio, although it is uncommon among private investors in trading. However, robo-advisor platforms that focus their strategies on passive investments in index funds are increasingly booming, thus freeing the investor from any activity.
2.5 Accumulation Strategy: Buy and Maintain
The accumulation strategy, called “buy and hold” in English, is very popular and based on buying and holding assets for a very long period of time. You buy when the value is too low to sell them over time when their value will be on the rise and thus make a profit.
When we talk about time, we do not mean a year or two, but 10 or 20. In this period of time, the value will rise and fall several times. So if you get “nervous” when the value drops, this strategy is not the most suitable for you.
It is also not recommended if you are just starting out since you have to have a certain sense to know what action to take and to detect which company will emerge and which will not. This strategy is also very much implemented in the real estate market.
2.6 Investments for Dividends and stock market events
This type of investment is one of the most conservative and was popular several years ago since it is quite safe because it is independent of the stock market. They usually offer a return between 1.5% and 4.35%, although it can even reach 7%.
Basically, companies that are listed on the stock exchange regularly distribute dividends to shareholders as long as the stock rises. In other words, every year, you would receive remuneration. Investing based on the profitability of the dividend should only be done in very stable, solid, and safe companies. So the trick is to know how to choose companies that pay good dividends.
This strategy offers long-term profits and is considered very good since dividend investments are less volatile. This dividend stock purchase strategy suits non-aggressive and traditional investors looking for annualized cash flow.It is recommended that those who have their capital in fixed-term deposits allocate 35% of their savings to investing in dividends.
2.7 Dividend Growth Investing Strategy
The dividend growth investing strategy is only suitable for very high-risk profiles because the risk is very high. It consists of investing in start-up companies and estimating that the service or product they offer will be profitable and will produce considerable profits.It is, therefore a long-term strategy.
3. The compound interest investment strategy
The only way to get financial freedom is to make your money work for you, although many of us do what we do to be able to make money. Compound interest is an investment strategy in which you save money that generates interest; that interest is then invested again in the capital, with which you generate interest on interest, with which your money’s growth is exponential.
Albert Einstein called it one of the most incredible forces in nature; you just have to save it and let it act.
The golden rule of every strategy is to invest.
Allocate a maximum of 2% of your capital to high-risk investments. If you invest $1000 and the investment does not go as you expected, the most you can lose is $20, or 2%.
So, for example, on the stock exchange, you can automatically set the “limit loss” to that amount, and when the share value falls, the system will sell the stock. Why this formula? Because it promotes diversification, which is the first commandment every investor learns on the first day.
If you lose no more than 2%, you don’t put all your money into a single trick. In five investments, you may have losses, but in the sixth, you will generate 50% of the profits to compensate for the previous losses.
Saving is not the same as investing.
Keeping money in a savings account is not investing; the savings strategy is not good if you want to increase your capital. Fortunately, more and more people are trying to save a percentage at the end of the month; 66% of Spaniards say they can save every month.
However, we are still far from an investment culture. Most people put their savings in a deposit account and more occasionally, in index funds, stocks, or even peer-to-peer investments.
Why isn’t saving enough? Every year there is a fluctuation of approximately 2.5%; this percentage is not the same in all countries, and every year it varies; sometimes, it can reach 3%. So to not lose money annually, you would have to receive a profit of 2.5% net. So if you save $1000 next year, these thousand euros will be $970.
What is the best investment strategy?
None of these strategies is better or worse; analyze and test which of them is the one that works best for you. Focus first on your goal, such as reducing risks, increasing capital, liquidating the mortgage, saving for a trip, etc. Then analyze how you can put your goal into practice according to your profile with the different investment products that exist in the market.
We recommend that you have several portfolios so that in this way, you can distribute your savings as much as possible. If you don’t want to complicate yourself too much, the simplest and most profitable option today is to invest in indexed funds managed by automatic managers. Studies in trading have shown that passive investment usually gives more profitability in the long run.
Last updated: May 5, 2022