Essentials of investment refers to why investment, or the need for investment, is required. The investment strategy is a plan, which is created to guide an investor to choose the most appropriate investment portfolio that will help him achieve his financial goals within a particular period of time.
An investment strategy usually involves a set of methods, rules, and regulations, and is designed according to the exchange or compromise of the investor’s risks and returns. A number of investors like to increase their earnings through high-risk investments, whilst others prefer investing in assets with minimum risk involved.
However, the majority of investors choose an investment strategy that lies in the middle.
Investment strategies can be broadly categorized into the following types:
Active strategies: One of the principal active strategies is market timing (an investor is able to move into the market when it is on the low and sell the stocks when the market is on the high), which is applied for maximizing yields.
Passive strategies: Frequently implemented for reducing transaction costs.
One of the most popular strategies is the buy and hold, which is basically a long term investment plan. The idea behind this is that stock markets yield a commendable rate of return in spite of stages of fluctuation or downfall. Indexing is a strictly passive variable of the buy and hold strategy and, in this case, an investor purchases a limited number of every share existing in the stock market index, for example the Standard and Poor 500 Index, or more probably in an index fund, which is a form of a mutual fund.
Additionally, as the market timing strategy is not applicable for small-scale investors, it is advisable to apply the buy and hold strategy. In case of real estate investment the retail and small-scale investors apply the buy and hold strategy, because the holding period is normally equal to the total span of the mortgage loan.
Last Updated on : 5th July 2013