What’s your investment strategy?

There is more to investing than simply buying a share you like the sound of, and sitting back and hoping. You might be lucky, but the chances are that you would be much luckier if you have an Investment strategy.

An investment strategy is a set of rules or objectives that guide your selection of an investment portfolio. It should reflect your profit objectives, your attitude to risk and your timescales. You don’t need to create your own strategy. There are several approaches – we look at some of the most popular.

Timing the market.

Buying when the price of a stock is low, and selling at its peak seems like an obvious way to make money. It would be – if you knew when a share had hit its low or high. At Continuum, we believe timing the market simply does not work, because none of us knows what the future holds.

Buy and Hold

‘Time in the market’ is more effective than ‘timing the market.’ Buying investments and holding them can provide long-term returns despite short term volatility.

It means less frequent trading than other strategies, cutting trading costs and therefore increasing your overall returns.

Value Investing

The value investor looks for bargains, stocks selling at less than their real value. Finding them takes a great deal of research, meaning that value investing is best left to fund managers who can spend the time and resources required. Investing through such a fund might provide the rewards without the homework.

Growth and Momentum Investing

Growth stocks are simply those that are growing. In a healthy economy there should be many to choose from. However, some sectors grow more than others.

Technology companies might outperform more mundane businesses, but beware – they may also fall faster, especially if the technology they are based on becomes obsolete.

Momentum investing is a similar strategy based on the idea that stock that is growing fastest will continue to do so. Both growth and momentum investing are based on the idea of buy high and sell higher.

Core and Satellite

Core and Satellite has a safe and steady ‘core’ investment, such as an index mutual fund, and other ‘satellite’ funds. This provides diversification with your eggs in different baskets, and aim for above-average returns with below-average risk.

Fundamental and Technical Analysis

Fundamental analysis is an active investing strategy that involves analysing financial statements to find stocks worth investing in. Definitely one for expert investors, who may be able to interpret the data to see the potential.

Technical analysis is even more demanding, and relies on spotting patterns in the market called indicators, which may herald future market movements. Some investors believe that these patterns are actually illusory.

Index tracking

Index tracking seems may not seem like a strategy at all, because it is a ‘passive’ rather than an ‘active’ approach. Instead of making decisions, you simply buy all the shares in a particular index – which most people would do though a suitable fund. Spreading your investment like this allows diversification spreading your bets to minimise falls, while over time, business growth should provide the performance you need.

What should you do?

There is no single ‘best investment strategy’ apart from the one that works for you. If you want help in deciding on the strategy that might make your money work the hardest to reach your personal financial goals, your best strategy of all might be to get some advice from the Continuum team.

The value of investments, and the income from them, can fall as well as rise and you may get back less than you invested.