The two most frequent questions I get from Millennial Money readers are “what do you invest in?” and “what are the best investment strategies?” Over the past month, I have received hundreds of those emails. Due to the sheer volume of emails I’m receiving, it has become difficult to manage my inbox.
The approach that drives your investing choices is your investment strategy. It’s important to periodically review your investment strategy to make sure it’s in line with your long-term goals.
Investing strategies that maximize your return and minimize your risk are the best. Diversification is one of the most important steps in creating a successful investing strategy.
There are many strategies out there. It’s important to find a strategy that works for you. I will show you how to choose, buy, and sell assets to reach your financial goals. It is important to research and make sure that the decision you make is in line with your financial goals, no matter which approach you choose.
Top 7 Investment Strategies
There are seven popular investing strategies you can use. It’s important to remember that no single strategy is guaranteed to be successful, so it’s important to assess which one is the best fit for your individual financial goals. Depending on your financial goals, risk tolerance, and timeline, which one is best for you. Before investing in any kind of financial product, it’s important to do your research and consider all options.
- Dollar-Cost Averaging
- Buy and Hold
- Index Investing
- Active Investing
- Growth Investing
- Value Investing
- Income Investing
1. Dollar-Cost Averaging
Dollar-cost averaging is a simple trading strategy where you contribute a certain amount of money to your investments. This strategy helps to minimize risk by avoiding the “all-in” approach and allows investors to benefit from market fluctuations.
The timing and dollar amount are up to you and depend on your goals and budget. To reach your financial goals in the long run, be sure to put the money aside consistently so that you can reach your investment goals.
You can combine this strategy with other ones. You can use this to create a comprehensive approach to achieving your goals. The stress of market timing is eliminated by dollar cost averaging. Spreading out your investments over time may help reduce the risk of investing. You are investing regardless of prices, instead of monitoring the stock market and trying to buy at the right time.
When prices decline, your investment will get you more shares. You can maximize your return on investment by taking advantage of the changing prices in the market. This strategy can help you level out your purchase price and make you a more disciplined investor. By reducing the amount of money you invest at any one time, you can spread out your investments and gain more exposure to different asset classes to further mitigate risk.
2. Buy and Hold
One of Warren Buffet’s favorite investment principles is the buy-and-hold strategy. This strategy has the potential to generate long-term returns with minimal risk, which is why it is popular among investors. You purchase an investment and hold it for a long time.
Investments that are expected to perform well for years to come are what you need to be successful with this approach. It’s important to understand the risks associated with each investment and make sure it fits into your overall financial goals. It is important to research and project the long-term growth potential of any stock or other security you are considering investing in. Make sure to review the financials of any company before investing, as this will help ensure that your money is going into a sound investment.
It can be tempting to sell when the market is down. The market can rebound quickly and it’s important to remember that. Regardless of short-term market fluctuations, you need to hold on to your stocks for this strategy to work. If you’re comfortable with a “set it and forget it” approach, buy and hold is for you. It can be rewarding to build long-term wealth with this strategy.
3. Index Investing
You can invest in funds that mirror the returns of a benchmark index like the S&P 500. You can lower your risk by investing in index funds that hold hundreds of securities. Gaining exposure to a wide range of markets is easy with index funds.
You can invest in both mutual funds and exchange-traded funds. These types of funds can be used to reduce the amount of risk you take on when investing. Some index funds focus on the entire market, while others focus on one sector, industry, or type of company. Investing in index funds is a great way to reduce risk and still provide potential for growth.
Since there aren’t as many trades taking place, index exchange traded funds and mutual funds tend to have less taxable capital gains than actively managed funds. Long-term investors who want to minimize their taxes on their investments can benefit from this.
If you want to beat the market, index funds are not the best vehicle for you. It’s important to note that index funds aren’t a guaranteed way to make more money than the market. You would be better off with an actively managed fund. If you want to match market returns, index investing is a good strategy. It’s easy to build wealth and achieve long-term financial goals with index investing.
4. Active Investing
Active investing is the opposite of buy and hold and index investing. Active investing is a strategy where the investor looks for opportunities in the market to buy and sell assets in order to generate higher returns than those generated by index investing. Unlike passive investing, which focuses on long-term growth, active investors look for short-term gains. Increased risks may be taken by active investors in order to achieve these short-term goals.
Active investors try to beat the returns of the index. This investing strategy leans into it to make impactful short-term profits instead of avoiding it because of the market’s volatility. By taking advantage of the price swings in the market, investors can potentially make greater profits than if they had adopted a buy-and-hold strategy.
Active investors rely on technical analysis to inform their trades. They need to be able to make quick decisions. Professionals might look beyond price data to other economic factors like a company’s financial statements. They may look at the management’s track record, competitive landscape, and any potential risks associated with the company.
You can use an advisor or invest in actively managed funds. The best option is dependent on your financial goals, risk tolerance and time horizon.
5. Growth Investing
A growth investor wants to increase their profits quickly. Growth investors usually focus on growth stocks. Growth stocks are companies that have experienced rapid growth over a short period of time and are expected to continue to grow in the future.
These companies are growing their revenue at a fast pace. They are poised to have a significant impact on the industry. Think of companies that offer innovative products and services. These companies have a competitive edge that can help them succeed in the marketplace. Growth investing can be done in the technology sector. The potential for significant returns over the long-term is provided by it.
You can think of growth investing as offensive investing, rather than defending your earnings and steadily growing passive income, because you are trying to score high returns by investing in emerging markets. Growth investing involves taking on more risk in pursuit of higher returns.
Investing in emerging companies is a high-risk endeavor, but the growth potential is worth it for a lot of investors. It’s important to remember that investing in emerging companies is not for everyone and should only be done after proper research and consideration.
6. Value Investing
Value investing is all about finding a bargain. It tries to buy stocks of companies with low share prices that have good sales, earnings, and book value. Value investors buy stocks they think are being underestimated because they have more long-term earning potential than the market gives them credit for. Value investors look for stocks with high dividends and low price-to-earnings ratios.
It is similar to buying a new phone when it is on sale. It doesn’t change the value of what you get when the price goes down. It’s important to look at the long-term value of a purchase before making a decision.
Value investors watch the market closely and jump on stocks from historically dependable and profitable companies when their stock prices drop for rational reasons, like a flop of a new product, that they think the company can easily recover from. They believe that the market will eventually recognize the company’s potential and drive up the stock price.
The price/earnings ratio can be used to identify value stocks. By looking at a company’s price/earnings ratio and other financial metrics, you can determine if a stock is a good value purchase. If you want to invest more passive, you can leave the research to the pros and invest in value funds. With a value fund, you can still benefit from the long-term rising stock market without needing to research each security.
7. Income Investing
Income investing focuses on producing a regular stream of passive income from your investments. It is used by people who want to generate an income from their investments. This can include dividends, bond yields, and more. When investors sell an asset at a higher price than they paid, they can benefit from capital gains.
A lot of people think of retirement when they think of income investing, but it’s possible to earn extra income at any age. Income investing is an effective way to build financial security and create a steady stream of extra income.
If they increase in value, you could make more money if you sell them. It is possible to create wealth by investing in stocks and bonds.
Here are a few assets that you can use to earn income through investing:
- Dividend stocks
- Dividend ETFs
- REIT (real estate investment trusts) dividends
- Money Market Accounts (MMAs)
- Bonds
- CDs
When it comes to investing in stocks, income investing poses less risk than some of the other strategies on this list; however, the market always fluctuates. Income can change from time to time, and dividends aren’t guaranteed. Bond and CDs have moderate returns. Compared to stocks and equity-based funds, fixed income products are less risky.
Factors to Consider in Your Investment Strategy
Here are a few key factors you need to keep in mind as you build out your own investment strategy:
Risk
No matterwhat investing strategy you choose, there will be some risk involved. To make sure you are comfortable with the risks associated with your chosen strategy, it is important to understand them. Some of the higher-risk options have the potential to produce high rewards.
It is important to figure out your risk tolerance as an investor. If you want your investments to be aligned with your goals, you should seek professional guidance from an experienced financial advisor. Think about how much risk you are willing to take and decide if you are comfortable with it. The higher the potential for reward, the higher the risk associated with it.
Investment Management
You have to decide if you want to manage your own investments, get professional help, or take a hybrid approach.
Here’s a look at your options:
- You can choose your investments with self-directed investing. It’s a great way to take control of your finances and maximize your potential for growth. Cut down on fees by managing your portfolio. The best investment apps provide a ton of data and research tools to help you make informed investment decisions.
- If you want to keep track of your investment objectives for low or no management fees, arobo-advisors can help. Those who want to take control of their investments but don’t have the time or expertise to manage them on their own can use a robo-advisor.
- Financial advisors can provide hands-on advice and actively manage your portfolio. A financial advisor can help you make better financial decisions. Estate planning, taxes, and retirement are other financial subjects they can help with for a fee.
Depending on your investment style, level of expertise, and preferences, which type of management is right for you. The most effective approach is the one that works best for you.
Timeline
One of the most important factors to consider in your investment plan is your investing timeline.
You can either invest for short-term goals or you can invest for the long haul.
Short-Term Investment Strategies (1-5 year horizon)
If you want to invest for a short period of time, you should keep your money in a bond fund or CD at your bank. Even if the returns are not as high as some other investments, these investments can still provide a steady stream of income.
You are going to lose money if you keep your money in a traditional savings account with a 0.1% interest rate. With the right approach, you can take advantage of the potential for a higher return while minimizing the risk of losing your hard-earned money.
If you are willing to take on a bit more risk, a balanced index fund like the Vanguard Wellesley Income Fund can help you generate a higher return. The fund seeks to provide long-term, steady income growth and is managed by a team of experienced professionals.
It helps a lot of people sleep at night if they sit on too much cash. Having too much cash can lead to missed opportunities and a lack of growth. Even if I lose money in the short term, I will come out ahead because I know my money is making money.
I don’t know if I’ll buy anything large in the short term, so I’m keeping my investments focused on a longer-term time horizon. I’m confident that my current strategy will ensure that I get the most out of my investments. A lot of my early retirement calculations are based on mostly staying invested in equities and expecting a 6% compounded annual return over the next 30 years.
If you want to save for a vacation, home, or car, I don’t recommend putting your money into stocks like me. A more conservative approach includes a mix of investments, such as stocks, bonds, and cash.
It is likely too risky since stocks can go up and down in a short period of time. You don’t want your investment to decline 20% before you find the perfect house or take that vacation. It’s important that you have a plan in place to protect your investments and minimize the risk of unexpected losses.
Long-Term Investment Strategies (10+ year horizon)
I follow my daily investing habits and manage 100% of my long-term investments myself. I make sure to do my research thoroughly and stay up-to-date on the current market news so that I can make informed decisions about my investments. I don’t work with financial advisers. It is easy to do yourself with reading and emotional bulletproofing. You can become an expert in self-improvement and emotional intelligence if you take the time to learn the basics.
Most of the time people get poor investment returns because they get emotional. It is important to remember that investing isn’t a short-term game and that it is important to remain disciplined and stick to the plan in order to achieve long-term success. If you work with a financial advisor, they can help you control your emotions. An objective assessment of your financial situation can be provided by a financial advisor.
It helps take the emotion out of investing when you realize how investing works and how to minimize your risk.
All of my long-term investments are held in four different accounts:
- Roth IRA
- 401k
- SEP IRA
- Brokerage account
I get a tax benefit when I deposit or withdraw money. These accounts can be used to save for short-term goals.
It is important to minimize the impact of taxes on future earnings of your investments. You can lower the amount of taxes you pay on your earnings by carefully planning your investments and using available tax deductions. If you have a side hustle, I always recommend maxing out your SEP-IRA before investing in anything else.
Most IRA accounts allow you to buy and sell stocks inside them. An IRA account is a great choice if you want to save on taxes and make the most of your investments. I buy AMZN in my SEP-IRA.
Since the IRS wants to get its money, there are contribution limits on tax-advantaged retirement accounts. It is important to know the limits in order to maximize your savings.
Where My Money Is Invested
I follow my daily investing habits and manage 100% of my long-term investments myself. If I continue to manage my investments this way, they will yield positive returns over time.
Here’s a breakdown of where my money is invested, to give you an example of an investing strategy at work:
Index Funds: 70%
I have 70% of my long-term investments in index funds. I try to put 70% into individual stocks and bonds. My two favorites are the Vanguard Total Stock Market Index Fund and Vanguard Total Stock Index Fund , but I invest in a few others highlighted here.
Domestic funds and international funds make up 20% of my index investments. The diversified approach will help me reach my long-term financial goals.
I invest heavily in the stock market for a long time. I’ve done a lot of research to make sure I’m making the best decisions for my future. The best thing about keeping money in these index funds is that I don’t have to worry about it and they are low-tax since very little trading is done within them. I know that my money is being invested into a diversified portfolio of stocks and bonds.
99% of investors don’t beat the stock market, so I prefer to track the market. Investing in the stock market can be a great way to build wealth over time, but it’s important to remember that investing comes with risks. When I started my financial independence journey in 2010, every dollar I invested was worth over 3 dollars. I’m proud of how far I’ve come since that first investment. It took me just a few clicks on my phone to get that return. I’m happy I invested my money.
Equities: 20%
I plan to hold Amazon, Apple, and Facebook for the long haul, and 20% of my long-term investments are in individual equities. I keep some of my investments in an index fund because I want to be diversified across different types of assets.
I invest in companies that I believe in. I do my due diligence to make sure that I’m investing in the right companies. If you hold an investment for at least a year then it is only subject to capital gains tax and I don’t sell stocks very often because I want to minimize my taxes. I try to keep my investments for as long as possible in order to benefit from the lower tax rate.
I don’t recommend anyone to day trade because it’s too risky and emotional for me. I prefer to invest in the stock market for the long-term as it offers more stability and a better chance of success.
Most people lose money because it takes too much time. It’s not a sure bet with no guarantee of success. Day trading is actually one of my biggest money mistakes.
Real Estate and REITs: 5%
5% is invested in real estate. A majority of the investment portfolio is invested in different stocks and bonds. My decision to buy instead of renting helped me make over $350,000 on a property in only 4 years, and I am looking to invest in more real estate properties.
I am going to keep investing at least 5% of my portfolio in real estate and starting to explore investing in multi-unit buildings, but finding a deal is tough and this type of investing comes with a lot of hassles. I am looking into partnering with a reliable real estate investment firm to help me navigate this type of investing. I will keep you posted. I’ll be in touch soon.
Non-Traditional Investments: 5%
5% is invested in non-traditional investments. These investments have the potential for higher returns over time. I know them well, so I can make educated purchases. If you’re unsure about either of these investments, it’s best to start small and do your research. I have made a lot of money investing in domains and only recently started investing in art, but look to expand both. I like to invest in domain investing. I read up on the latest trends so I can make smart investments.
How I Diversify My Investments
This percentage distribution fluctuates quite a bit during the year, depending on the value of the individualequities that I own and my real estate property. I need to make sure that my asset allocation is balanced throughout the year. The wealthy may or may not make money on the mysterious assets classes and alternative classes I am planning to pursue as I build more wealth. I’m excited to learn more about the risks and benefits of investing in alternative asset classes so that I can make the most informed decisions for my portfolio.
Diversification of your asset allocation becomes more important as you make more money, since you don’t want too much of your money in one type of investment. If you have a diversified portfolio, you can manage risk and balance your investments over time. In my 30s, I have a long time horizon and I’m probably over-exposed in equities. I plan to reduce the risk in my portfolio over time.
How to Avoid Bad Investments
There are a few ways to avoid poor investment decisions. Don’t be afraid to ask for advice from a financial advisor if you’re unsure, and be sure to research any potential investments thoroughly before committing to them.
Be Wary of Investment Advice from Scammers
I hear bad investing ideas more than good ones. Many bad ideas come from inexperienced investors who don’t understand the risks they are taking. I attended a wealth expo and most of what the speakers shared was wrong and dangerous. This lack of reliable information puts attendees at risk of making decisions that could have devastating effects on their finances.
Over 6,000 people listened to pitches for everything from tax liens to software as the speaker promised to only pick winning stocks. It was a great display of energy and enthusiasm, and I was happy to be a part of it.
The audience lined up to pay thousands of dollars on speculative investing products that promised 30%+ per year. Many of these investors were taken advantage of by the scam. They will lose money on strategies that don’t work. These strategies are often sold by people who don’t have the best interests of the investor in mind.
I had family members who were misled by financial advisors who promised returns of over 30% per year. They ended up losing money because it was too good to be true.
99% of the time they are playing you, if anyone promises you any type of return over 12%. When someone offers you an investment opportunity that seems too good to be true, it is always a good idea to be cautious.
There is a lot of confusing and misleading information out there and that is one of the reasons I started this website. I want to give readers an honest source of information that can help them make informed decisions. Don’t fall for the scam. Before you invest your money, be sure to research any offers you receive.
If you want to work with a financial advisor, make sure you choose one with a good reputation and credentials. Ask for references from past clients and do your own research to make sure the financial advisor you choose is qualified.
Don’t Invest in Anything You Don’t Understand
I work hard for my money and don’t gamble it on investments I don’t understand. I will make sure to research any potential investments thoroughly before I commit my money. Many people try to sell me stupid investments because they know I have some money. I don’t want to make bad decisions with my money, so I try to be careful. I don’t listen to pitches unless I get in touch with them.
I have to go beyond my core investing strategy for an investment to be compelling. Most of my money has been invested in the following investments. I am confident that these investments will provide me with a secure financial future.
5 Tips to Avoid Crappy Investments
- NEVER buy a financial or investing product from someone you just met
- It’s hard to get 12% returns+ per year and if anyone promises you a return they are probably full of it. A well-diversified portfolio that is tailored to your risk tolerance and financial goals is much safer to invest in.
- Don’t invest in it if you don’t understand it. Before committing to an investment, it is important to do your research and understand it.
- Most “investments” people sell can’t be recreated by you, so they might have worked one time, if at all. Before investing in something that may not be worth it in the long run, you should do your own research. If you see the results not typical on any marketing materials, rip them up and run the other way. Before investing in any product or service, be sure to do your own research and read reviews.
- Unless you have hundreds of thousands of dollars, there are no secrets of the super wealthy that anyone will sell you for $500. Hard work, dedication and smart investing decisions are the only secrets to wealth.
Conclusion
There are a lot of investment strategies out there. It depends on how involved you want to be, how comfortable you are with risk, and what you are investing for. Before selecting an investment option, it’s important to consider how much time you can devote to researching and managing your investments.
All of the strategies have benefits. The strategies that work best for you are important. The most important thing is to start. Don’t let fear of the unknown hold you back; take a leap of faith and start your journey!
I needed to manage my investments and follow my investment strategy in order to reach $1 million in 5 years.
I am still benefiting from the compounding of the money I started investing in 2010 as my investments continue to grow. I feel more confident about reaching my long-term goals because my financial future looks more secure.
I hope this helps you on your journey to financial independence and beyond because I am not a financial advisor. When it comes to financial investments, it’s important to do your own research and make educated decisions.
What investments do you make? I want to find out what types of investments are best for me. To learn more about investing in my book Financial Freedom: A Proven Path to All The Money You Will Ever Need
