Super, you are the owner of your first stocks. What to do with them?
Buy low and sell high? That is the most popular way to play this game.
The main principle behind the supply and demand: as supply increases, demand decreases. Hence, as demand increases, supply decreases. As a result, pricing is changed. When demand is high and supply is low, the buyer of the asset will like to pay a bigger price due to the asset’s present rarity. By the same logic, when supply is high and demand is low, the price the buyer will like to pay decreases. When the amount of supply meets the demand for an asset, the price is at equilibrium.
The figure below illustrates these principles:
There are 5 types of investment strategies:
Value Investing. An investment strategy made popular by Warren Buffet, the principle behind value investing is simple: buy stocks that are cheaper than they should be.
Small Cap Investing.
Socially Responsible Investing.
Investment strategies are the game plan for your portfolio. Use the one that’s suite you and you will boost your possibilities of success.
People widely plan for their workday, a vacation, buying a car, but they frequently forget about the most plan-required task of them all: investing. Investing money without an investment strategy is like going on a trip across the unknown area without a map or GPS. They can improve your chances of winning.
You can leave this world without ever buying a single stock. But if you do so, you will never really understand the full potential of investing. And the pleasure of rewards which comes with it.
Creating an investment strategy is a number two-step, after learning the ins and outs of stocks and how to buy them.
Having an investment strategy is a set of instruction booklet guiding you through the investment process. It will help you cut many potential investments that may show poorly over time or that don’t suite the investment goals you want to achieve.
When creating an investment strategy, it is important to quantitative evaluate what you are trying to achieve.
If you say that you simply want to make money or become wealthy, it is not practical. A better goal would be to say “I want to achieve a 10% average annual return on my investment increases over the next 10 years. I want to accumulate $200,000 that will be used to buy a bungalow.”
If your goal is the more specific objective, it is better.
Before any investment you have to decide:
What’s your investment purpose?
It’s essential to have a bright, exact investment purpose. Your investment purpose should reflect details such as the level of income or capital growth you’re trying to reach. You’ll also need to analyze your risk tolerance when forming an investment goal.
Examine what your investment timeframe is. If you want a long-term investment, you may have more space for any market downturns. Also, you may be able for investments with higher risk, hence higher returns. If your investment timeframe is insufficient or shorter, you should be more careful.
A diversified portfolio can protect your investment. The asset allocation will reveal how careful or aggressive your investment strategy is. Discover how much of your portfolio you need in each of the asset classes. It’s necessary to rebalance your portfolio during its lifetime to guarantee that your asset class weightings continue to be suitable for you.
Choose what investments you’ll permit yourself to make
Discover the classes of investments you are comfortable to make, and those that are not. For instance, will you invest in risky stocks, or hold well-established businesses only? You can examine your investment goals over time and change them respectively with your skill level and risk tolerance.
Have a risk management plan
If you have a good management plan, stick to it. Recognize the risks to your investment strategy, and how you’ll decrease those risks. Risk management is one of the crucial action when building an investment strategy.
Accessing information and assistance
In this digital age, we’re blessed with access to a tremendous amount of information, research, and tools that can help us to make investment decisions. If we don’t have the confidence to make investment decisions by ourselves, we can seek professional assistance.
Some of the tools available include:
Company research and stock recommendations
Charting and technical analysis
Watchlists and alerts
A financial planner or adviser.
An investment strategy is worthless without a decent perception of it. There are many different strategies that you can employ different investment objectives. The key is matching the right strategy with the right objective.
Investing, like most other things, requires that you have a general knowledge about how to do things in order to avoid clumsy spots. Would you make a cake without a proper recipe? Would you play cello in the philharmonic orchestra without sheet music? We hope not.
We already spoke about 3 strategies but it is time to introduce the others.
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