Create a profitable portfolio with these solid investment strategies .
This episode is about investment strategies that can help you select a successful portfolio.
I’ve received several emails from intelligent young listeners who want to know more about the basics of investing, especially when it comes to stocks. I applaud your enthusiasm for building wealth! This show will introduce you to basic investment strategies and will be a good review for the more experienced investors who are listening. Next week, I'll go a little more in depth by discussing Exchange Traded Funds (ETFs) and whether or not they represent a good investment strategy.
Passive vs. Active Investing
There are two major camps of investment philosophies, passive strategies and active strategies. Investors on the passive side generally believe that it’s best to purchase a good investment and keep it for the long term. This is often called a buy-and-hold strategy. The idea is that fewer transactions of buying and selling minimize costs. A buy-and-hold strategy is also supported by the concept that over longer periods of time investing in stocks can provide higher returns despite market volatility.
Active investment strategies, on the other hand, aim to maximize return despite transaction costs. Active investors believe they can achieve higher returns by timing the stock market. This means buying low and selling high over shorter periods of time. Active investors watch the market carefully and make decisions based on current events or from charting patterns of a stock’s performance.
Neither strategy is inherently right or wrong, but should be adopted based on one’s level of knowledge, investing experience, and tolerance for risk.
It’s A Bear Out There
With our current economic conditions, preserving and building wealth is simply more challenging for all types of investors. We’re going to have to work harder at investing than we’ve had to for a long time! During a bull market, when the stock market is trending up, average investors can afford to be a bit complacent about their portfolio because they’re generally doing well. A rising tide lifts all boats, right?
Those good old investing days will return. But for now, many are taking on a new attitude that includes being more picky and cautious about their investment choices. Bear markets make us take a hard look at where we should invest. I wish I could tell you that stock A or bond B is the right place to find the highest return for your money. But the challenge and fun of investing is that there’s never an absolute right or wrong choice. However, there are three broad methods that can help guide you down a successful investment path. These methods involve investing for growth, value, or income.