Type of Investments and Strategies

The majority of individuals in society will love to invest for profits, but the lack of knowledge about the investment world is often an impediment to make the step towards investing.

In this article, I would like to explore, with the amateur investor in mind, the different types of strategies available, so they can be utilised by readers for their particular situation. After we ascertain all this information, the amateur investor will be better able to evaluate his situation, along with a fitting strategy, and as a consequence, a fitting investments.

In the first place, let’s examine the main investment strategies that exist. These strategies are Growth, Balance, and Income. Growth is a strategy that focuses in the expansion of an investor’s assets. This may be further carried out by reinvesting the profits generated by the assets. Therefore, a growth investor will most likely reinvest his or her profits once they are accomplished, and blend them with the original investment.

As I mentioned in previous articles, reinvesting earnings will achieve much higher profits through compounding. The investor that invests with a Growth Strategy is most likely an individual that is open to higher risk and volatility, but is looking to achieve high returns from his investment.

The type of assets that are commonly associate with this type of strategies are equities. Equities are financial instruments, assets that can be traded, that represent a partial ownership of a particular corporation. The price of the equity changes depending on the demand and supply of the public towards the ownership of the company.

These equities or stocks can be exchanged in the stock exchanges around the world. This strategy has the highest profit potential of the three, but also has the highest risk levels. This strategy should not be considered if the investor is looking to invest for a period inferior to three years. It is highly recommended that the period of investment be as long as possible due to possible volatility. This strategy is most appropriate for a young person saving towards retirement, since time and acceptance towards volatility are both in their favour.

The second type of investment strategy that we can take is called an Income Strategy. This strategy is suitable to an investor that is altogether opposite to the previous one. This investor is less tolerant toward risk, and also prefers to receive a regular fixed income. The type of financial instrument that this investor will pick will more than likely be fixed income securities or bonds.

Bonds are loans that the public provides to a company with expectation of receiving a coupon or interest payment towards that capital periodically, often annually or semi-annually. The full amount of the investment shall be return at the end of the term, commonly known as maturity.

These type of investment is most appropriate for a retired individual or somebody that is happy with the amount of capital they have accumulated, and now would like that investment to support them with periodic income. This type of investment is significantly less volatile than stocks, therefore the risk and the potential profit are less relative to equities.

The third and last type of investment strategy is balanced; that is a combination of the last two. The proper allocation of bonds or stocks come down to the specific investor.

As we have discuss depending on the risk acceptance of each investor.

I hope this article served to clarify what type of investment strategy most aligned to investor’s needs, and what investments most relate to each strategy.

As I always say, it is a good idea to consult an expert in the field like a financial advisor or manager to help you allocate your assets in line with your financial situation and needs. The financial world is a complex one, and an experienced opinion will always help you to maximize your gains whatever the strategy that you adopt.