Choosing the right investment strategy may be one of the most important financial decisions an investor makes.
As a trusted roadmap to your financial goals, your investment strategy should reflect your personal circumstances, investing timeframes, and tolerance for risk. This means the ‘right’ investment strategy may differ from person-to-person.
In this article, we discuss eight common investing strategies. Considering the characteristics of each will place you in a better position to make an informed decision on which strategy is right for you. Before making any investment decision, we recommend seeking advice from a licensed financial adviser to ensure your strategy is tailored to your unique needs.
1. Fundamental Analysis
Fundamental analysis aims to determine an asset or stock’s intrinsic value – that is, what its price should be compared to the current market price – by analysing economic and financial factors which can affect its value. This information is gathered via publicly available data about a company, such as financial statements, and the market it operates in. Analysts compare the intrinsic value with the asset or stock’s current price to determine if it is undervalued or overvalued and advise to invest accordingly.
2. Value Investing
Value investing is a long-term investment strategy where investors use fundamental analysis to identify assets or stocks which are underappreciated by the market and buy them at a ‘discount’. This strategy operates on the belief that markets tend to overreact to news, resulting in short-term fluctuations in demand and market price, even if the intrinsic value does not change. This overreaction allows investors to make an investment ‘on sale’ and are rewarded when the market returns to normal and the intrinsic value is recognised.
3. Growth Investing
Growth investors purchase assets or stocks which have great potential for future capital growth, where earnings are expected to increase at an above-average rate compared to the overall market. Growth investing aims to increase wealth through long or short-term capital appreciation – that is, gains achieved when sold rather than distributions received while owned. As such, this strategy is generally not ideal for investors seeking a steady income. When deciding to invest, growth investors generally consider factors such as the asset’s current health, prospects of the industry, as well as potential to grow.
4. Technical Analysis
Unlike fundamental analysis which evaluates an investment or asset’s value based on internal factors such as a company’s sales and borrowings, technical analysis uses charts to predict future patterns and trends based on recent trading activity, such as price changes, trading volumes and volatility. By recognising certain cues and signals, called indicators, investors can predict forthcoming patterns and invest accordingly.
5. Income Investing
With global cash rates at a historical low, generating substantial cash flow via investments is becoming increasingly difficult. Income investing aims to build an investment portfolio of diversified investments structured to generate regular income, in the form of dividends, fund distributions, bond yields or interest payments. Income investors often weigh up characteristics such as yield, consistency of past performance, growth and earnings to determine if a prospective investment is fit for their portfolio. These investments can include real estate holdings, shares, mutual funds, property funds or trusts and bonds.
6. Buy and Hold Investing
Buy and Hold is a long-term, passive investment strategy where investors purchase an asset or stock and simply hold them for long periods of time regardless of fluctuations in the market. This strategy operates on the belief that longer ‘time in the market’ will offer a higher overall return on investment than ‘timing the market’; and investors actively select investments but have little-to-no concern for short-term fluctuations and technical indicators.
7. Sustainable Investing
Sustainable investors aim to make investments that have positive social impacts. For example, investors may seek to invest in funds or companies that are engaged in social justice and environmental sustainability rather than those that may enable gambling and addiction. Sustainable investing also recognises that the companies tackling the world’s greatest challenges are often well-positioned for growth. By the nature of investing, however, it is crucial for sustainable investors to assess the financial outlook of the investments in addition to their social value.
8. Dollar-Cost Averaging
Dollar-cost averaging is a long-term investment strategy which aims to reduce the impact of market volatility on the investment. In this strategy, rather than trying to time the market and investing in an asset or stock in one lump-sum, investors buy smaller, fixed amounts at regular intervals over an extended period. In doing so, investors end up paying a more ‘average’ purchase price across the whole investment period as the price of the asset will often vary with each investment.
How to find the right investing strategy for you
There are more investment strategies than those mentioned in this article – in fact, too many to list. Any of these strategies may generate a significant return when you make an informed choice based on your financial position. They all also carry risks which should be considered carefully. Regardless of the investment strategy you adopt, it is important you have one.
When developing your own investment strategy or making a major investment decision, you should always consult a licensed financial adviser or financial planner. They will work with you to develop a plan that suits your needs.
Trilogy’s investment options all share the common goal of providing income-focused solutions designed to help you achieve your financial goals. Learn more about our range of mortgage trusts, diversified income funds and property trusts.
This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.