Top investment strategies to achieve your financial goals
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, Trilogy shares 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.
Fundamental analysis is an investment strategy which analyses economic and financial factors about the company or asset. This assists in determining the asset’s intrinsic value – that is, what its price should be compared to the current market price – and its potential for future growth.
This information is gathered via publicly available data about the company or asset and the market it operates in, such as financial statements detailing revenue growth, debt, and earnings, as well as more intangible elements such as the company’s management and strategy.
Analysts then 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.
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.
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. This is achieved by purchasing assets or stocks which have potential for future capital growth.
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.
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 movements, trading volumes and volatility.
By recognising certain cues and signals, called indicators, investors predict forthcoming patterns and invest accordingly.
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.
This income can be in the form of dividends, fund distributions, bond yields or interest payments from real estate holdings, shares, mutual funds, property funds or trusts and bonds. 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.
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’.
Buy and Hold investors actively select investments but have little-to-no concern for short-term fluctuations and technical indicators.
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.
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. Regardless of the investment strategy you adopt, it is important you have one.
Any of these strategies may generate a competitive return when you make an informed choice based on your financial position. They all also carry risks which should be considered carefully.
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 Funds is an AIA sponsor. Please note, Trilogy Funds is not able to provide you with financial or tax advice and we recommend you seek an independent professional consultation about the taxation treatment of your investment when completing your tax return.
This article by Trilogy Funds Management Limited ABN 59 080 383 679 (Trilogy Funds) does not take into account your objectives, personal circumstances or needs, nor is it an offer of securities. Investments in Trilogy Funds products are only available through the relevant PDS issued by Trilogy Funds and available at www.trilogyfunds.com.au. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Investments with Trilogy Funds are not bank deposits and are not government guaranteed.