Understanding 5 Types of Investment Strategies

- Passive investing
If you are a passive investor, you may prefer to take the safer route to financial security and may have a lower tolerance for risk. ETFs may be more apt for you, as it is mostly about compounding interest that brings in relatively consistent return, and that the original amount invested never decreases. The most cost-effective method to purchase and retain ETFs is through an online investment brokerage, which you can conveniently compare on MoneySmart.

- Hands-off investing
This strategy works for you if you prefer to let someone else manage your portfolios – such as fund managers, or via investment-linked insurance policies. You prefer the convenience of hands-off investing because you may not have the time or bandwidth to execute in-depth research nor spend time on the actual investment process. One of your major concerns will surround finding a trustworthy and reliable fund manager who will get you the results you have in mind. Do take note that your fund manager’s fees will be deducted from your investment returns.

- Value investing
You’re willing to buy “hidden gems” in the stock market at lower-than-expected prices. You would only sell these gems when the prices meet your expectations and projections – but this can take a long time. You critically analyse the market and use fundamental analysis to identify companies that are underpriced. For instance, you would be interested to research and buy stocks of a publicly-traded tech company which promises to solve certain real-world problems within the next 2 to 10 years.

- Growth investing
When you’re a more experienced investor and looking to gain (and lose) money within the shortest time possible. Growth investing requires a greater appetite for risk, higher tolerance for losses, willingness to take losses for the opportunity of a bigger future payoff, and that strategy to “time” the market is crucial – buying when prices bottom out and selling when they peak. However, do note that this trading strategy is not suitable for amateur investors as you will need experience and knowledge of chart reading, indicators, and fundamental investment analysis.

- Dividend investing
If you’re planning to adopt this strategy, there are a wide range of factors to think about such as:

Stock selection: Such investors often target stocks of companies with a history of consistent dividend payments. Common sectors for dividend investing include real estate investment trusts (REITs), banking, utilities, and telecommunications.

Dividend yield: This yield is a crucial metric for dividend investors as it represents the annual dividend income as a percentage of the stock's current market price. Investors often look for stocks with a balance between a reasonable dividend yield and the company's stability and growth potential.

Steady income and long-term growth: One of the primary goals of dividend investing is to create a reliable income stream. Many investors, especially those planning for retirement, appreciate the regular cash flow provided by dividends, which can be used for living expenses or reinvested to compound wealth and the potential for capital appreciation.

Dividend Reinvestment Plans (DRIPs): Some investors choose to reinvest their dividends back into the same stocks through Dividend Reinvestment Plans. This allows for the compounding of returns over time, potentially increasing the number of shares held and, consequently, future dividend income.