An investment strategy is the plan of action an investor has for his investments based on personal goals, future financial needs and risk tolerance. Three well-known types of investment strategies include:
- Income investing. Those who partake in income investing are typically more risk averse than others. This form of investing is the easiest to understand and ideal for those just trying to build an income. Many investors looking to retire will participate in income investing as it offers stable and high dividends. This investment strategy looks for well-established companies that don't see a lot of fluctuation in their stocks.
- Value investing. The strategy in value investing is to find stocks that have been under-valued by the market. This is a moderately risky form of investment because you have to wait until the market has corrected the stock value to make your money back. To determine a stock's value, investors look at the price-to-earnings ratio. If there is a low price-to-earnings ratio the market will likely be unwilling to pay more for the stock. Make sure you don't confuse an undervalued stock with and under-performing stock.
- Growth investing. This investment strategy comes with the highest risks. Growth investing is when an investor purchases a stock that has potential for high growth. High growth often translates to high stock prices and high profits. Investors utilizing this strategy must also prepare for the possibility of young companies failing instead of growing.
Do you need assistance determining which investing strategy is best for your stock portfolio? If so, contact the Winflow Financial Group.