5 steps to build an investment strategy

Unfortunately for scriptwriters, successful investment is rarely as it is depicted on TV. Find a stock ignored by everyone and scoop some key fact that will change its future. Buy in with everything you have  – and after some nail biting delays, watch it shoot up in value.

It makes great drama, but it does not make money in the real world.

Successful investment does not depend on luck, inside information, or an uncanny ability to see the future. In fact, it depends on careful analysis of risk, on taking your time – and a sound investment strategy.

What is an investment strategy?

Successful investment is a considered process, and it needs careful planning for the long term.

An investment strategy is a set of principles designed to codify that planning and help you reach your financial and investment goals. Once you have established your strategy, it makes investment decisions simpler, because you can evaluate every opportunity against it. 

However, there is no single winning strategy – because we all have different goals and different resources, we all need our own individual plan. Your investment strategy must depend on your personal circumstances, including your age, capital, risk tolerance, and goals.

So while one investor should have a conservative, or low-risk strategy where the focus is on wealth protection others might need a highly aggressive approach to seek rapid growth by focusing on capital appreciation. Your strategy will help you determine the kind of investments you purchase, including stocks, bonds, funds, or property, how you will arrange your asset allocation, and how much risk you can tolerate.

Strategies aren’t static, which means they need to be reviewed periodically as circumstances change.

Step 1: Defining your objectives

It is not enough to say that you are investing to make money. Do you need to grow your capital, or do you need an income from the cash you put in?

Your age might help shape your answer. Someone at the start of their career will probably want to grow their capital. If you are nearing retirement, you will be more concerned with using the wealth you have built up to provide a regular income. 

Of course, you may have a more urgent objective. Building up enough cash to buy your home, or to start a business might be priorities for you.

Step 2: Looking at your timescales

Time is money, and the longer you have to invest, the more compound interest, and market performance can do for you. So, if you have 40 years until you plan to retire, speculative investment is fine. A 25-year-old at the start of their career will probably want to grow their capital. They can afford to take some risks with speculative stocks, and even lose some money if the market takes a dive because they have plenty of time to earn it back.

A 45-year-old doesn’t have as much time to put money away for retirement and would be better off with a more conservative plan. They may consider investing in things like government securities, and other safer options. 

A 65-year-old will almost certainly be looking at using their accumulated wealth to build an income, and invest in income generating stock and bonds,

Step 3: Understand your attitude to risk

There are no guarantees with investments. What can go up can just as easily go down. However, although this sounds worrying, understanding and even accepting some risk is part of any investment strategy.

The fact is that the investments that offer the least risk tend to be those that also offer the smallest potential gains. A high-risk stock for example could crash, taking your entire investment with it – but it could also provide the most exciting prospects for growth.

Risk is priced into most investments accordingly. A spread of investments, some high risk and some chosen for safety could be the best way to control the level of risk you face. 

There is an emotional side to risk. There is no point in investing in a potentially rewarding but definitely volatile stock if it means you will lose sleep every time the FTSE falls a point or two.

Remember, some risk is inevitable. As an investor you should only risk what you can afford to lose.

Step 4: Start planning

Do your homework and calculate how much you can invest as a lump sum, and how much you expect to save each month. Planning your finances so you know how much you can invest and how regularly you can do it are good habits to develop.

Look at the investments available. If you are new to investing, this can be daunting. You should probably avoid the complexities of such things as futures and derivatives. Never invest in anything you don’t fully understand.

Avoiding anything that seems too good to be true and being patient with your investments is also important.

But you will need to look at various markets, and business sectors, and do your homework. 

Look at your objectives, times scales and attitudes to risk.

There is a lot to consider. Finalising your strategy may be simpler with some expert help.

Step 5: Call us at Continuum

At Continuum we can provide you with the help you need to build an investment strategy that you can rely on, based on your timescales, objectives and attitudes to risk. It can even include detailed projections to let you see what kind of returns you should enjoy on the investments you make – and even how soon you will reach your targets.

But we don’t stop by helping you with planning – we can help you find the particular investments to put your investment strategy to work.

Then we will work with you and provide regular performance reviews, ensuring that your investment strategy and your wealth creation remain on track.

To get started, simply call us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

When investing your capital is at risk

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