What is Your Investment Strategy?
Fri, Jun 26, 1:45 PM ET, by Kenneth C. Bateman
The concept of investment strategy is one of the most overlooked aspects of investing, and critical to achieving investment goals.
Most people do not have an investment strategy; they have a strategy to be in investments. They do not particularly follow the markets, do not know how to read a balance sheet, and do not follow macroeconomic conditions. They simply have money taken out of their income regularly and put into “investments.” Usually they are unaware of the underlying composition of their investments. They are astounded when their strategy, or a more appropriately coined term, “lack of a strategy,” provides lower than expected returns over all investment horizons.
Successful investors have a strategy. Whether they are daytraders, whose strategy is to close out every position at the end of every day; swing traders, who hold positions for a few days; technical traders, who use trend lines, moving averages, and a myriad of other indicators to tell them when to buy or sell; or long-term investors who follow economic developments and corporate operations – they all have a strategy. In every case the strategy has well defined metrics to measure success and determine when the investment is worth retaining.
I favor a focused investment strategy, where a large portion of investments are tied to risk-free investments and high-quality corporate bonds and debentures. A smaller amount of the total portfolio, which is specifically marked for risk, is dedicated a few selected equities. Researching equities is a time intensive process. But it can offer superior returns over the long haul.
Others prefer different approaches and are very successful. But the point is that they have an investment strategy, which allows them to mitigate risk and avoid taking huge losses. The idea of “just being in the market” will not make a successful investor. In fact, not having a strategy exposes passive investors to huge losses that can compromise future life plans.
So make the right choice: have an investment strategy – not a strategy to be in investments.
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