Before you deepdive into investing, it’s best to draw up a personal plan or strategy to guide you along the way.
An investment strategy is a set of guidelines that help the investor’s selection of an investment, depending on their goals, skills, capital and relationship to risk. A strategy might change over time, as investors reevaluate their goals and change their behavior.
Passive vs Active. Passive investors usually buy and hold. For them, a good option is index funds,which can also come with less expenses than finding stocks yourself and investing in them by yourself. Active investors trust their skills enough to think they can outperform the indexes.
Value vs Growth. Value investors look for stocks in companies that they think are undervalued. Those using the growth investing strategy look at the growth potential of a company and invest capital in the stocks of young companies that have potential for earnings growth.
Momentum investing. Momentum investors ride the waves of the market and look to buy stocks that have recently performed well. Momentum investors choose stocks that have been on an upward trend in the last months and expect them to continue performing well.
Shorting. This allows the investor to profit from a drop in the asset’s price. Short sellers speculate on the decline in a stock or a security’s price. It is an extremely risky and advanced strategy, not for beginners.
Dollar-Cost averaging. DCA is a strategy that aims to reduce the impact of market volatility by spreading out in time the purchases of stocks or funds - at regular intervals with equal amounts. This ensures that the investor is not buying all the assets at a high price and can spread out the costs.