In finance, an investment strategy is a set of rules, behaviors, and procedures designed to guide an investor in the selection of an investment portfolio. The strategy is generally designed around the risk/return disadvantage of investors: some investors prefer to maximize expected returns on investment through risky assets, others prefer to minimize risk, but must select a strategy somewhere in between.
Passive strategies are often used to minimize transaction costs and active strategies to the extent that market times are an attempt to maximize returns.
Example: Buy and Maintain
One of the best-known investment strategies is to buy and maintain. Buying and maintaining is a long-term investment strategy, based on the concept that in the long term stock markets give a good rate of return despite periods of instability or decline. A purely passive variant of the indexation of this strategy is that an investor buys a small proportion of all shares in a market such as the S&P 500 index, or more likely, in a mutual fund called an index fund and the active strategy is the opposite of the market strategy.
This view also holds that market timing, in which one can enter the market at the low end and sell at the high end, simply does not work or does not work for small investors, so it is better to simply buy and hold. The smallest of the small investors usually use buying and holding as an investment strategy in investment real estate when the operating period is usually the lifespan of their mortgage.
– What are Investment Strategies:
A strategy is a path to follow in order to better achieve the objectives, and Investment Strategies are the paths chosen to obtain better returns on the investments made. Investment Strategies will depend on the profile of the Investor, whether more conservative or risky, the environment in which the investments will be made, such as bank deposits or the stock market, the current economic situation, whether there is a recession or abundance and growth. Investment Strategies also relate to the greater or lesser amount of available capital, the need to obtain returns in the short or long term, and the knowledge and experience of a specific market sector.
– What are Investment Strategies for?
They serve to focus on important business, not to be distracted by short-term financial instruments, to maintain discipline until the objectives pursued are achieved, and to be consistent with the needs and desires of the investor. Investment Strategies are used to improve the impact, not to risk too much and to balance the investment portfolio in a planned way. Likewise, Investment Strategies can be measured according to the partial and final results achieved, to change the course of action when it is needed.
– What is the Investment Strategies:
Depending on the risk, Investment Strategies may be oriented towards fixed-term and guaranteed return bank deposits, or towards indefinite-term speculative markets with variable returns. In any case, the best investment strategies should be oriented to the long term, to the diversification of the portfolio and basket of products in which they are invested, to the achievement of the particular objectives of the investor, to choose in a conscious and freeway, where the gossip of the environment stays in its place, contributes information, allows its evaluation, and the decisions of the case are made. In addition, Investment Strategies vary according to the high or low supply of banking and traditional products, since if interest rates are very low, investors will tend to develop Investment Strategies in more speculative and risky sectors such as the stock market or the forex market, with the expectation of obtaining better alternatives and yields.
– Planning of Investment Strategies:
Investment Strategies do not come overnight, they require decision and willingness on the part of the potential investor, the allocation of an amount of capital and the availability of it to invest, research and contact with the financial markets to become aware of the environment and products, the advice of experienced personnel such as Dealers or brokers, and the judicious planning of the investment as is done in any business.