Whether you’re saving to purchase a car or build up your retirement, investment strategies are an important part of many successful investors’ portfolios.
The term “investment strategy” specifically refers to an investor’s plan of attack to guide their investment decisions. Your strategy can be based on any number of factors, but they generally all boil down to the desire to reach an ultimate financial goal. If you’re interested in building your own plan of action, then there are some important things to consider. Let’s take a look at the facts about how to set investment strategies for different goals.
Where to Start
The first step in building a successful investment strategy is taking a look at your financial objectives. Deciding what you want to work towards can make it easier to set aside the funds you need within a realistic and achievable time frame. Most goals can be grouped by time period: short-term (less than one year), medium-term (one to four years), and long-term (five years or more), with each term bringing with it a different approach. For instance, if you’re investing so that you can purchase a car, your investments will probably be short-term and involve financial vehicles that carry low risk. On the other hand, investment strategies designed for something long-term like a college fund can afford a bit more risk because you’ll have more time to recover.
After you have figured out what you want to work towards, you can determine an investment vehicle that meets your needs, such as a 401k plan or a high yield savings account. As we mentioned before, different time frames will be associated with various forms of investment – but the specific one largely depends on your own experience level. Here’s where talking to a financial advisor is worthwhile because they can help determine exactly what will work best with your investment strategies, whether it’s long-term stock investment or a high-yield savings account.
Whether you’re working with an advisor or doing your own research, make sure you’re looking into asset allocation. This term refers to the process of determining the proportion of funds allotted to different investments within a portfolio; also known as diversification, asset allocation is important because it’ll help you avoid putting all of your eggs into the proverbial basket. Regardless of the time frame your goals fall within, having your investments spread out over a variety of avenues and companies lowers your risk significantly; in the event of a company failing or a sudden economic downturn, allocated assets will give you a better chance of recovering and not missing out on profiting from your investments.
While we mentioned some general tips for investment strategies, the specifics of your plan will largely depend on your own objectives and financial experience. Investment strategies are practical ways to ensure that you are giving yourself a plan that you can stick to over a period of time in order to reach your goals – so, whether you’re a seasoned investor or just starting out, building a workable strategy will definitely work in your favor.