Various investment strategies
Investment strategies are the mode of rules or directions for making decisions before investment. This is a branch of finance that needs the proper selection ofinvestment strategy to achieve proper goals. A well-balanced strategy is the main key to get a long run business plan that brings success. At the initial stage for this risk-return investment portfolio traders and businesspersons should be ready to face certain risk factors and open market challenges. The combination of risk and return that makes a strong strategy shows an increased chance to obtain higher goals.
Some investors expect higher returns and so risk at expensive assets by investing on them and on the other hand some other want to minimize risk and reduce transaction cost. Most of the rest choose to invest in-between both of these. A balanced strategy requires a long time research and risk tolerance.Mutual funds or real estate are the examples of high returns investment fields that are high risk-associated.Here return is measured on the basis of the estimation of past or current or future return for the investment.
The two major types of investment strategies are active strategy and passive strategy. Active investment strategies are followed for maximizing the return and this strategy is based on market timing which implies that one enters the market and buys the objects when the prices are low and sell them when the prices grow high. This is a type of buying instrument at cheaper cost and selling them off at appreciable price.
Passive strategy is based on buy and hold procedure. These strategies are associated with low risks and are beneficial for small time investors. It is a long term strategy adopted for the equity market and gives favorable returns in the long run in spite of being volatile in nature. The investors buy all the shares in the market index at small proportions. Retail investors buy and hold this strategy in real estate that often goes for the period of life time for their mortgage.
Value Investment Strategy
Value investing strategy, introduced by Benjamin Graham is the one who explains that the stock the investor buys is undervalued by the market and considered to be of low value as compared to the company issuing it. If the market does not value the share not for any internal cause and the stock is purchased and hold at the lower value regardless of the exterior condition or stock market scenario at that moment but later the real value is determined and corrected by the market which proves to be higher than the purchased value the investor is considered to be a value investor and the strategy is called value investing strategy.
Growth Growth investing strategy is one of the classic risk-return strategies. Growth investors search such young companies that have the potential to grow and exceed further. The investors recognize and expect the price of the stock to raise at a certain point of time and accordingly they invest on the selected deserving companies. We can see the example of the implication of this strategy in 1990 when the technology based industry began to flourish. But there is a lot of risk involved in it as the young companies are likely to fail at the initial stage due to the lack of experience.
Income Investment Strategy
Income investment strategy is not confined into buying and selling shares for profit. Here the investors buy shares for dividends. They want these stable dividends as their income source.So they invest on large companies that pay dividends at regular basis. The investors stick to the strong market leaders for the acquisition of income. This kind of strategy does not include high risk factor.