Investment Strategies: How To Choose The Right Strategy For You (2024)

Your Investment strategy is like your game plan to building your portfolio. But it is very important that you find the one that’s right for your objectives and situation in life. A 25 year old should have a different strategy then a 65 year old.

We generally spend a decent amount of time planning for our workday, a vacation, and buying a car, but we often forget the most important plan of all: mapping out our investment strategy and plan for growing old and retiring.

Investing your money without an investment strategy is like a football team going into a game without a playbook. Although investment strategies are not required, they significantly improve your chances of winning. Creating an investment strategy should be your #2 step after you learn some of the basics of investing in the stock market like how to read stock quotesandhow to buy stocksand other “getting started” info found here.

The Importance of Defining Your Investment Strategy

Most financial planners agree that the following are the beginning steps to a successful investment strategy:

  1. Stop paying high interest rates on credit cards and other debt.
  2. Try to save 10% of your income
  3. Have at least 3 months of expenses saved in cash
  4. Invest a fixed dollar amount each month in the stock market
  5. Plan on investing in stocks for at least 5 years

So, if you are at step 3 and ready to invest in the stock market, what stocks do you buy?

Having an investment strategy is like having an instruction booklet guiding you through the investment process. It will help you discard many potential investments that may perform poorly overtime or that are not right for the investment goals you are looking to achieve.

When creating an investment strategy, it is important to quantitatively figure out what you are seeking to accomplish. Stating that you simply want to make money or become wealthy is not helpful. A better objective would be to say “I want to achieve an 8% average annual return on my investment contributions over the next 10 years in order to have a $200,000 portfolio that will be used to purchase a 2nd home.” The more specific the objective, the better. And it doesn’t stop there. An investment strategy is useless without a proper understanding of it. There are many different stock investment strategies that apply to different investment objectives, the key is pairing the right strategy with the right objective.

Once you have gained some familiarity with the stock market terminology and are ready to take the next step, we have found this one newsletter is the BEST for beginner investors to GET THE BEST STOCK PICKS that have beat the market consistently over the last 5 years. In fact, their last 24 stocks picks have an average return of 111%. That means you would have more than doubled your money in 12 months had you bought just a little of each of their picks. Read this review of the Motley Fool to learn more.

Types of Investment Strategies

Value Investing

There are many investment types, but the most popular strategy, especially for beginners, is value investing. An investment strategy made popular by Warren Buffet, the principle behind value investing is simple: buy stocks that are cheaper than they should be based on their long-term earnings potential. Finding stocks that are under-priced takes a lot of research on the fundamentals of the underlying companies. And once you’ve found them, it may take a few months or years for their price to rise. This buy and hold technique requires a patient investor who wants to keep their money invested for a few years, which is why it’s one of the best investment strategies for beginners. While the stock market has returned about 8% per year over the last 100 years, there are a few people like Warren Buffet whose stock picks have significantly outperformed the market as a long term investment strategy. If you are planning on keeping your money invested in the stock market for at least 5 years and you want the best source for excellent “value stock” recommendations then consider the Motley Fool Stock Advisor. Take a look at the performance of the Motley Fool stock picks over the last 5 years, as of the date in the table:

Investment Strategies: How To Choose The Right Strategy For You (1)

The summary of the Motley Fool performance is this: Over the 5 year period from 2016 to 2020, the average return of all 120 of their stock picks is 206% and 84% of those picks are profitable. That means their stock picks beat the market by 129% Without a doubt, if you have at least $500 to invest in the stock market each month and you plan on leaving that money in the stock market for at least 5 years, the Motley Fool is the best place to get stock picks. If you are a new subscriber, you can get the next 12 months of their stock picks at a discount. All investors should understand at least the basics ofvalue investing.

Income Investing

A great way to build wealth over time, income investing involves buying securities that generally pay out returns on a steady schedule. Bonds are the best known type of fixed income security, but the income investing strategy also includesdividend paying stocks, exchange-traded funds (ETFs),mutual funds, real estate investment trusts (REITs), and other types of investment funds. Fixed income investments provide a reliable income stream with minimal risk and depending on the risk the investor is looking to take, should comprise at least a small portion of every investment strategy.

Growth Investing

An investment strategy that focuses on capital appreciation. Growth investors look for companies that exhibit signs of above-average growth, through revenues and profits, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios. What Warren Buffet did for value investing, Peter Lynch did for growth investing. A relatively riskier strategy,growth investinginvolves investing in smaller companies that have high potential for growth, blue chips and emerging markets.

Small Cap Investing

An investment strategy fit for those looking to take on a little more risk in their portfolio. As the name suggests,small cap investing involves purchasing stock of small companies with smallermarket capitalization(usually between $300 million and $2 billion). Small Cap stocks are appealing to investors due to their ability to go unnoticed.Large-cap stockswill often have inflated prices since everyone’s paying attention to them. Small cap stocks tend to have less attention on them because: a) investors stay away from their riskiness and b) institutional investors (like mutual funds) have restrictions when it comes to investing in small cap companies. Small cap investing should only be used by more experienced stock investors as they are more volatile and therefore difficult to trade.

Socially Responsible Investing

Investing in a stock portfolio built of environmentally and socially friendly companies while staying competitive alongside other kinds of securities in a typical market environment is called socially responsible investing. In today’s modern world, investors and the general public expect companies to maintain some social conscience, and they’re putting their money where their mouth is. SRI is one path to seeking returns that poses a significant collateral benefit for everyone.

How Choose An Investing Strategy That’s Right For You

Setting up your investment strategy is like buying a new car, before you look at the different models, you need to figure out what style suits you best. And just like cars, there are many investment types to choose from when creating an investment strategy. When choosing the right investing strategy, there are questions that need to be answered first. What is your investment horizon? What returns are you seeking to achieve? What amount of risk are you able to tolerate? What are the funds in this investment to be used for? Answering these questions will ultimately also help inbuilding your stock portfolio.

Determining what will be your breakdown between cash, fixed-income securities and stocks is a good start towards creating your investment strategy. The breakdown of your asset allocation ultimately depends on your risk tolerance. A conservative investor may prefer to hold 80% of his portfolio in fixed-income and 20% in stocks. The reverse would be true for an aggressive investor, while a balanced investor will follow a 50-50 split.

Investment Strategies: How To Choose The Right Strategy For You (2)

In terms of specific stock market strategies within your asset allocation, if you are a high risk investor with a long investment horizon, you may want to include small cap and growth investing in your portfolio. If you have a moderate risk tolerance and shorter investment horizon, you may be more suitable for value and income investing. If you have a low risk tolerance and short investment horizon, you may want to focus solely on income investing. For those looking for companies that aim to do no harm, you can add socially responsible assets to your portfolio with relative ease. It is also important to adapt to the investment strategy you are most comfortable with. Someone with a knack for choosing growth stocks may make that strategy the priority in their portfolio.

Our Best-of-the-Best Awards for 2023

Ranking of Top Stock Newsletters Based on 2023 Picks, Dec. 31, 2023

We are paid subscribers to dozens of stock and option newsletters. We actively track every recommendation from all of these services, calculate performance, and share our results of the top performing stock newsletters for under $500 below. The main metric to look for is EXCESS RETURN--that means they are beating the market!

RankStock NewsletterStock
Picks
Average
Return
S&P500
Return
Excess
Return
Percent
Profitable
Max %
Return
Min %
Return
1.Investment Strategies: How To Choose The Right Strategy For You (3)
Stock Advisor
2419.9%13.1%6.7%83%107%-28%
Summary: 2 picks/month offering long-term potential; Lifetime average return of 544% vs S&P500's 139% since 2002; Retail Price: $199/yr.
Read our Stock Advisor Review.
Current Promotion: Save 60% with Code SALE60
2.Investment Strategies: How To Choose The Right Strategy For You (4)
Everlasting Stocks
2418.8%12.7%6.0%79%73%-41%
Summary: Only sold as part of Epic Bundle (includes Everlasting Stocks, Stock Advisor, Rule Breakers); 2 picks/month; Tom Gardner's service with the same team that has beaten the market by 3x; Retail Price: $299/yr.
Read our Epic Bundle Review.
Epic Bundle ($1000+ Value), : Now Just $198
3.Investment Strategies: How To Choose The Right Strategy For You (5)
Alpha Picks
2417.7%12.6%5.0%83%64%-20%
Summary: 2 picks/month based on Seeking Alpha's Quant Rating; Launched in July, 2022; 2022 picks are beating the market by 47.6%; Lifetime average return of 37% vs S&P500's 15% since 2022; Retail Price: $199/yr.
Read our Alpha Picks Review.
Current Promotion:
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4.Investment Strategies: How To Choose The Right Strategy For You (6)
Value Investor
1217.9%13.0%4.9%75%127%-35%
Summary: 10-25 stock picks per year based on Zacks' Quant Rating; Retail Price: $495/yr. Read our Zacks Review.Current Promotion:$1, then $495/yr
5.Investment Strategies: How To Choose The Right Strategy For You (7)
Rule Breakers
2415.4%11.7%3.6%71%123%-39%
Summary: 2 picks/month focusing on disruptive technology and business models; Lifetime average return of 266% vs S&P500's 118% since 2005; Retail Price: $299/yr. Read our Rule Breakers Review.Current Promotion: Try it for $99/yr
6.Real Estate Investors1214.6%11.9%2.7%83%44%-11%
7.Cramer's Action Alerts Plus10110.6%11.1%-0.5%48%96%-51%
8.Zacks Top 101023.2%26.2%-3%60%120%-24%
9.Top Under $1059-2.4%2.8%-5.2%36%130%-44%
10.Home Run Investor46-1.8%3.6%-5.4%50%49%-29%
11.Dogs of the Dow1014.5%26.2%-11.7%70%95%-25%
12.IBD Top 50 Leaderboard5013.5%26.2%-12.7%n/an/an/a
Top Ranking Stock Newsletters based on their 2023 stock picks' performance as compared to S&P500. S&P500's return is based on average return of SP from date each stock pick is released. NOTE: To get these results you must buy equal dollar amounts of each pick on the date the stock pick is released. Investor Business Daily Top 50 based on performance of FFTY ETF.

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As an enthusiast with a deep understanding of investment strategies, it's crucial to highlight the significance of aligning one's investment approach with their unique financial objectives and life situation. The provided article emphasizes the importance of having a well-thought-out investment strategy, akin to a game plan for building a portfolio. Let's break down the key concepts and investment strategies mentioned in the article:

  1. Foundational Steps to a Successful Investment Strategy:

    • High-Interest Debt: Advises to stop paying high interest rates on credit cards and other debts.
    • Savings: Encourages saving at least 10% of income.
    • Emergency Fund: Recommends having at least 3 months of expenses saved in cash.
    • Regular Investments: Suggests investing a fixed dollar amount each month in the stock market.
    • Long-Term Perspective: Encourages planning on investing in stocks for at least 5 years.
  2. Importance of Defining Investment Strategy:

    • Likens investing without a strategy to a football team without a playbook.
    • Stresses the role of an investment strategy as an instruction booklet guiding through the investment process.
    • Highlights the need for a quantifiable objective in an investment strategy for clarity and effectiveness.
  3. Types of Investment Strategies: a. Value Investing:

    • Popularized by Warren Buffett.
    • Focuses on buying undervalued stocks based on long-term earnings potential.
    • Involves patience and a buy-and-hold approach.
    • Recommends the Motley Fool Stock Advisor for value stock recommendations.

    b. Income Investing:

    • Involves buying securities that pay out returns on a steady schedule.
    • Includes bonds, dividend-paying stocks, ETFs, mutual funds, REITs, and other investment funds.

    c. Growth Investing:

    • Focuses on capital appreciation.
    • Looks for companies with above-average growth potential, even if the share price seems expensive.
    • Considered riskier, particularly investing in smaller companies.

    d. Small Cap Investing:

    • Involves purchasing stock of small companies with smaller market capitalization.
    • More volatile and suitable for experienced investors willing to take on more risk.

    e. Socially Responsible Investing (SRI):

    • Involves building a stock portfolio of environmentally and socially friendly companies.
    • Reflects a growing expectation for companies to maintain social consciousness.
  4. Choosing the Right Investment Strategy:

    • Advises determining investment horizon, desired returns, risk tolerance, and the purpose of funds.
    • Recommends adapting the strategy to one's comfort level.
    • Suggests considering asset allocation breakdown between cash, fixed-income securities, and stocks based on risk tolerance.
  5. Best-of-the-Best Awards for 2023 - Top Stock Newsletters:

    • Ranks various stock newsletters based on their 2023 picks' performance.
    • Metrics include excess return, percentage of profitable picks, and maximum/minimum returns.
    • Highlights the importance of considering newsletter performance when seeking investment advice.

In conclusion, the article underscores the need for a personalized, well-defined investment strategy and provides insights into various investment approaches, making it a valuable resource for individuals at different stages of their financial journey.

Investment Strategies: How To Choose The Right Strategy For You (2024)
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