Are you in search of regular income? Do you need to pay off debts? Are you thinking of ways to save some extra money for retirement? You are taking the first steps towards your financial freedom. Or at least security.
Table of contents
That being said, it is time to learn about investment strategies. In a nutshell, this is what a good strategy is. You thoughtfully invest some funds into a certain thing. Then you find yourself thinking: I write my essay and earn money at the same time! Yes, this is how it works.
Spoiler: this is how it works if you understand what a proper strategy is and what type is best for you. For a better understanding, you should assess your:
- Future goals
- Financial health (where you spend and save your money, how much income you generate, etc.)
- Needs
- Risk tolerance
- Capital to maintain
- Level of involvement (preferred level of activity)
When you find the answers to these questions, take some time to learn about the types of investment strategies.
Long-Term VS Short-Term
- Stocks, mutual funds, gold, and rental real estate VS cash management accounts, short-term bonds, wholesaling, and high-interest saving accounts.
- Returns over several years (sometimes as long as the venture capitalist chooses to stay in the market) VS results before the three-year mark.
- Lower risk and higher turnaround VS earning capital fast to invest in something else.
There is no magic solution on how to do it right. The responsibility is yours to take.
Active VS Passive
This is where the desired level of involvement comes into play. Would you prefer to be regularly active or to sit back while your assets generate profits? Most people prefer the second option. This is how they see the investment functioning in general.
But we are all different. Of course, there are people who do not want to rely on a financial institution or advisor. They want to be hands-on with their finances. In this case, active investment strategies are the best solution. Day-to-day involvement should not be a problem for such people.
High-Risk VS Low-Risk
Does high risk always mean high profit? Well, high risk always means… high risk. So if you do not have time to financially recover (should anything go wrong), then you’d better go for a low-risk strategy. It works great for people of all ages.
DIY VS Hiring Professionals to Help
This is somewhat similar to active VS passive. But there is one important tip to share. If you prefer making all the choices yourself to delegating the responsibilities, you are a DIY type. But what if you physically have not got enough time for all your businesses? There is a low-cost automated helper – robo-advisor.
Best Pathways for Beginners
Now that we understand the whole notion better let us talk about more specific solutions for your additional income.
- Value investment
Not to make everything sound too boring, let us draw an analogy with shopping. In the financial world, value investing is a bargain shopping equivalent. As an experienced shopper, you should be able to identify the underpriced items expected to grow.
- Buy-and-hold
Imagine: you buy the first dress of a local designer who soon becomes world-famous. Of course, the value of this gown sky-rockets! It is the same but with stocks. You buy and hold them before the shares increase in value. Then you sell.
- Income investing
This is your wedding dress. After you have enjoyed it, you can rent it. The idea of income investing is generating payout at regular intervals. By ‘wedding dress,’ we mean rental properties, certain bonds, index funds, and dividend stocks.
Source: https://unsplash.com/photos/lVFoIi3SJq8
- Dollar-cost averaging
It is a very consistent method that helps to establish a regular financial discipline. It means adding money into your investments at regular intervals. The advantages and the risks are obvious here. You are safe by not buying too high. You are not going to end up with the highest returns either.
- Buy the index
It is a shopping marathon, not a sprint. You own the market through the fund and get its returns instead of trying to beat the market. It is a long-term, high-risk approach. But a simple one.
- Index and a few
Never put your eggs into one shopping basket. Just in case you drop one and all the eggs in it break. Divide your portfolio and make the most of index funds without risking your entire portfolio.
- Socially responsible investing (SRI)
SRI is like buying clothes from recycled materials only. This is a type of investment designed to attract everyone’s attention to social issues and create a positive change. Issues in society can be anything: from climate change to racism.
Source: https://unsplash.com/photos/jpqyfK7GB4w
Another way for SRI is to exclude stocks of certain companies. A popular example is alcohol and tobacco companies. Venture capitalists make sure that the company’s values align with their morals.
P.S. Nota Bene
- There is a slim chance that you are reading this article because you want to find out how to invest in crypto as a student. This strategy definitely outstrips other solutions at the moment, especially among your people and even teenagers. This hype may stay or go, but the principles will always remain the same. So we suggest that you focus on a bigger picture of financial literacy instead of just one aspect.
- What are the main characteristics of good investment strategies? They increase everything connected with money in your favor (income, returns, savings). And decrease the exposure to risk. If everything is the other way round, it does not mean that the strategy is bad, though. It is simply not designed for your purposes.
- What is your final goal and timeframe? How do you assess your risk tolerance and preferred level of activity? Your strategy depends on the answers to these questions.
- There is never a universal solution. Successful venture capitalists know that and at least pair their strategies. For instance, buying an index is a great ‘couple’ for a buy-and-hold approach. Combine the strategies for the best personalized solution for your case.
- Even if the strategy is short-term, you should see it as a ‘get rich quick’ scheme. You can have instant financial successes from time to time. But becoming financially comfortable takes time.
