When you start investing your money, there are a few decisions you need to be thinking about.
Most of which are very personal choices like your financial goals, the amount you can afford to invest, what you will invest in, and understanding investing strategies.
Usually, the fairly common question for most new investors is about the strategy they should take in order to be successful.
However, there is no exact answer as all investing strategies have advantages and disadvantages and it depends on what you are hoping to achieve financially.
Your personal investing strategy should be about minimizing your risk, but maximizing your return as best you can. Let’s take a look more at the investing strategies out there.
Before You Consider Any Investment Strategy
As you learn more about the investing strategies below, there are a few things you want to do first before diving in. This will mean examining your current financial health a bit further and getting the full picture of what you can afford to invest.
Some questions you want to ask yourself include:
- How is my current finances looking?
- What are my monthly expenses, debt, and income?
- What are some of my financial goals for investing?
- Is there a set amount I can invest consistently?
- What is my overall risk tolerance?
Although the answers to your questions might not paint a pretty financial picture or may alter in the future, it’s a great place to start before considering an investment strategy. These will help you formulate a plan and know what strategy might be best for you at this time.
And a common misconception is that you need a lot of money to get started investing, but you don’t. Platforms like Acorns and Stash let you invest in fractional shares, which helps you begin investing with little money.
However, if you are buried in debt or other financial burdens, ensure you are not risking too much money investing right away.
Watch Out for Bad Investing Advice
A big reason why investing can be intimidating or can feel like a scam to newbie investors is because there is so much information out there. And a lot of the investment advice or recommendations on investments are actually quite scammy.
There are stock-picking newsletters, random investing “gurus” promising 15%-30%+ returns, or other “full-proof” investments that you must buy today. Ignore it.
Ignore it all and do not be fooled by this investment noise. When it sounds too good to be true, it 99% of the time is and not worth your time.
Certainly, there is plenty of great investing advice as well as financial advisors who will help guide you correctly. But remember, most people pushing investing products or must-buy stock picks, just want your money in some way.
There are many horror stories of investment scams where people lost their life savings or retirement hoping to make a quick return. Don’t be the next victim.
Some things to keep in mind with investing strategies:
- If you do not understand the investment strategy, even after your research — do not invest.
- When someone you don’t know wants to give “exclusive” information, ignore it. Think about why someone would want to give their “secrets” away to someone they don’t know.
- When returns are guaranteed or a particularly high percentage return is stated, then it’s no worth considering. No one can predict exact investment returns and if they promise you something specific, it’s very likely a scam.
What Are the 4 Best Investing Strategies?
Naturally, there are a few different investing strategies you can decide to pursue. And many of these can be combined in some way, as many investors diversify strategies to find what personally fits their situation best.
So remember, you can combine strategies if needed based on your personal goals and risk tolerance. Let’s get into some of the basic and popular strategies.
1. Robo-Investing
A newer investing strategy that has proven quite popular and useful is robo-investing, which is considered a passive investing strategy. Many who are new to investing or starting out with just small amounts prefer to go the robo-investing route.
A robo-advisor is an automated, low-cost investing service that handles the basics for you like portfolio recommendations based on some questions about you, helps with rebalancing, re-investing, and more.
This is for those who have no interest in learning or rather just be hands-off and ensure consistent investing is happening.
Additionally, these robo-investing has become popular because of the very low fees and minimums needed to get started.
Plus, with most robo-advisors you still have access to stocks, bonds, ETFs, and traditional brokerage accounts or an IRA for your retirement.
If you are just starting or have little money to begin, a robo-investing strategy is a perfect place to start. Even more experienced investors or those who have more money to invest choose this option to make their lives easier.
There are a few popular options to begin a robo-investing strategy, including:
2. Growth Investing
One popular investing tactic is called growth investing. This strategy focuses on purchasing shares of companies that have indications of substantial growth in next few years.
These emerging companies typically create products or services that are very unique or difficult for other companies to potentially copy.
In order to find these companies, investors must research and do due diligence on financial statements, the product or services the company is offering, and other metrics that indicate potential growth.
The challenges are this can take time and patience to do your own analysis. Additionally, there is no guarantee even with all the right indicators that the company will indeed have massive growth.
But, the reason it becomes a popular investing strategy is that these companies can exponentially grow in value compared to standard stocks if the business starts to boom.
Out of the investing strategies listed here, this one takes more effort and is an active strategy. If you are brand new to investing, I would not recommend this strategy.
As you learn, time goes on, and you have more cash where you are okay potentially losing — then you might want to mix this into your overall strategy.
3. Buy-and-Hold Investing
My favorite investing strategy on this list is the buy-and-hold approach, which is one that many well-known investors like Warren Buffett generally recommend for beginners.
The goal with this strategy is that you are consistently investing in assets that you plan on holding for many years (typically 10+ years).
Another way to look at this is dollar-cost averaging, where you are investing in the same assets no matter if the market is up or down.
Even if there is a stock market correction or a bear market, this strategy is for those who are not panic selling nor worry about what the market is exactly doing. This means that you want to invest in assets that you believe have long-term potential and have proven to do well over long periods of time.
One of the best options to consider for a buy-and-hold strategy is index funds. An index fund is a type of mutual fund where the holdings are added to match or track a particular market index.
For example, Vanguard Index Funds are strong (and popular) choices that many buy-and-hold investors choose. This is the strategy I took because I don’t plan on touching this money until I retire, which is 25-30+ years away.
While there are some initial evaluation stages as far as which financial institution and funds you might pick, typically after you choose you are now holding on and continuing to invest in those options.
This strategy is great for beginners and experienced investors, especially the three-fund portfolio.
4. Value Investing
Although I mentioned Warren Buffett earlier about buy and hold investing, he is also known for the value investing strategy as well. Like I mentioned before, you can combine more than one strategy to fit your personal finance needs!
Value investing is when you purchase what is believed to be stocks that are currently undervalued but have a strong indication of long-term potential.
It could be, for example, a company that’s been around a long time and as a business performs well overall, but maybe had a bad quarter or something where investors are not paying much attention.
Typically, the share price is a bargain and is the time to scoop up a bunch of shares with the goal being it will have huge potential upside in a few years.
This is another investment strategy that I would not necessarily recommend if you are a beginner investor.
It requires that you are actively managing and researching companies, as well as paying attention to the stock market and news often to get insights into which companies might be undervalued.
But it is a popular strategy many investors choose or mix into their other strategies.
Tools to Help Your Investing Strategies
As you start to become more interested in investing and putting your investing strategies to work, there are some tools you want to consider to help you along the way.
Do you need all of these in this list? Of course not! But they can be beneficial in your wealth building journey.
Investing Apps and Platforms
- M1 Finance – Robo-advisor that allows you to create your own portfolio of ETFs and stocks with fractional shares, automation, and custom portfolios. No commissions or markups on trades.
- Ally Invest – Automated investing and free of advisory fees. Start investing with as little as $100 in managed portfolios based on your investing goals.
- Acorns – Micro-investing and robo-advisor platform allows you to invest spare change or start an IRA with various portfolio options.
- Stash – A micro-investing platform that offers stocks, bonds, and ETFs as well as retirement accounts. Can invest with as low as $1.
Financial Institutions For Beginners and Beyond
For those who may have a bit more experience and cash ready to invest, these well-known financial institutions will be great options. If you work for a company that offers a 401k, take advantage of that especially if there is a company match.
However, if your company does not offer one currently or you want to invest extra, you can open an account at one of these financial companies to maximize your investing strategy.
Simple Tools to Monitor Your Investments and Wealth
- Personal Capital – analyze and monitor your net worth and investments, uncover hidden fees, add savings goals, etc. for free.
- Blooom – Use their free retirement portfolio analyzer for 401ks or IRAs to get recommendations, uncover hidden fees, see if you are on the right track, and more.
What Is The Best Investing Strategy?
The best investing strategies are simply the ones where you can minimize your risk as much as possible, while also maximizing your returns. Ideally, your strategy should not be overly complicated and are assets you can buy and hold for the foreseeable future, like stocks, bonds, and real estate.
Remember though, the best-investing strategy depends on how long you plan on investing money, how active or “hands-on” you want to be with investing, and what you can afford to invest. You can have multiple goals and investment strategies, pending your various horizons for investing.
Additionally, while stocks, bonds, and real estate are great wealth-building options — there are other investment options to consider outside the stock market too.
My personal strategy has been a mix of buy-and-hold with a dash of growth investing as well. If I was starting from scratch, I would still be adopting buy-and-hold but would also dabble more in robo-investing as well. But those would be my choices based on my situation and interests, which yours may be very different.
What investing strategy interests you? Which strategies above have you implemented and why? Let me know in the comments below!