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There is no one-size-fits-all way to invest. However, there are some key indicators that one strategy may suit you better than another, depending on your feelings around risk tolerance, your particular financial goals, level of knowledge, and time horizon. If you’re new to investing or simply revising your strategy, this quiz may give you a place to start.
Key Takeaways
- An investment strategy is a set of guiding principles for achieving financial goals. These can range from conservative to aggressive approaches, influenced by factors such as age, goals, and risk tolerance.
- Knowing your risk tolerance is crucial in shaping your investment strategy. Those with a high risk tolerance often pursue aggressive strategies, while risk-averse individuals typically follow more conservative plans.
- To create a tailored investment strategy, write down your goals, believe in your plan, make it resilient, and regularly measure its success against set benchmarks like a target return percentage or indices like the S&P 500.
- Your financial goals and situations can change. It’s important to regularly review and adjust your investment strategy to remain aligned with your evolving objectives.
What Is An Investment Strategy?
Your personal investment strategy refers to the guiding principles you rely on to achieve financial and investment goals. Different investors follow different strategies, varying from conservative to aggressive, depending on a variety of factors, including, but not limited to:
- Age
- Goals
- Geography
- Time horizon
- Financial situation
- Risk tolerance
These factors help investors determine the kind of investments researched and ultimately purchased.
Understanding Your Risk Tolerance
Risk, aka how much you can stand to possibly lose, is a huge component of an investment strategy. Some individuals have a high tolerance for risk, while others are risk-averse.
People who are more open to risk, or have a greater investment horizon, tend to employ aggressive plans because they have a longer timeline, while those who primarily want to preserve capital are more likely to take a conservative approach. It comes down to personal preference, too.
Crafting Your Investment Strategy
1. Write It Down
Once you have an idea of what strategy you want to adopt, write down your process and how you’re going to get there.
2. Believe in Your Plan
Your unique knowledge, through research and experience, is your competitive advantage. Use it regularly within your investment strategy.
3. Make It Resilient
Good investment managers know where portfolio performance comes from and can explain not only their strategy’s strengths but also its weaknesses. This will allow you to maintain confidence, invest with conviction, and find alternative moves that complement your own.
4. Measure It
Develop a benchmark that matches your financial goals, which in turn should match your strategy. Do this by setting a target return percentage or comparing your results to a passive market index, such as the S&P 500.
Fast Fact
You can have a mix of strategies, and that’s OK! It’s also important to note that your financial situation and goals can, and will, change. When they do, review and adjust your investment strategy accordingly.
The Bottom Line on Investment Strategies
An investment strategy is a plan designed to help individual investors achieve their financial and investment goals. When choosing from a conservative, moderate, or aggressive strategy, you should think about your age, capital, risk tolerance, and goals. As your personal situation changes, you should reevaluate your investment strategy and readjust accordingly.
