Investment Strategies: Pick One and Stick With It
Many beginners have trouble deciding which stock market investing strategy to choose. Often they are even confused about what strategy they are currently implementing. This happens because most people learn about investing from their friends, coworkers, family, and whatever investing related magazines, newspapers, and web sites they follow. What they wind up with is a hodgepodge of random information to base their investments on rather than a cohesive strategy. The greatest danger in this is that, while most strategies work quite well on their own if implemented properly, they are usually quite disastrous when investors try to combine them together.
If you are new to investing, odds are you’re implementing a blend of several strategies rather than focusing your time and effort on just one. Take my advice, choose one strategy and stick with it, don’t try several at once. Like I mentioned above, when you combine strategies with different (often opposing) goals and selection criteria, you are virtually guaranteed to trail the market. Really, that bad? Yes! Over 75% of professional fund managers and investment advisors lag the S&P 500 as it is. Trust me, you have to excel to beat the indices and to excel you have to master your strategy.
Another reason many investors implement multiple strategies is that they think it will somehow decrease risk or increase returns. This is a mistake. Don’t ever be fooled into thinking combining strategies will insulate you from losses or optimize gains, only proper diversification and asset allocation can do that. Study several strategies, then pick one.
Are you an aggressive investor with a long way to go until retirement? Consider becoming a Growth Investor. Or is retirement on the horizon in which case Income investing might be the most appropriate approach.
Are you risk averse and hoping to buy companies that are undervalued so that your portfolio can grow while limiting downside potential? Consider becoming a Value Investor.
Do you want a low maintenance portfolio that will guarantee you the market’s return? Consider becoming an Index Investor (this is my style and why I like ETFs so much) or the somewhat related Mutual Fund investor.
Confident in your abilities to read the market? A Market Timing or Momentum strategy might be up you alley. Very few succeed with these approaches though. For every successful investor you’ve heard about there are probably 1,000 failures.
These are just some examples. There is a great strategy for every type of investor already defined and you will never need to combine them.
Ready to take a good hard look at the most popular strategies? Follow the links above to each article which will explain the major goals, investment selection methods, strengths, weaknesses, risks, and long-term outlook for the most common strategies. Very likely, you will be excited about several strategies since great investors have used them to outperform their peers and the market for decades. That is exactly why each review concludes with a look at the investor profile best suited to each strategy. Pay particular attention to this section. You will not be able to master a strategy if it is at odds with your personality, risk tolerance, or investing goals.