We all have our preferences. Some of us may prefer the hills for a joyful vacation; others may prefer the beachside for a blissful holiday. Our preferences drive our lives as well as our investment style. Since everyone have their own unique income, risk appetite and financial goals, the investment style varies from one individual to another.
If you have recently started working and still trying to identify the suitable investment style for yourself, here is a lowdown on different strategies to achieve your financial goals.
As the term suggests, the active investing style is about remaining on top of the market trends and taking steps in line with those trends to maximise profits. Investors opting for this particular style are focusing on short term goals and bet stocks, bonds, derivatives, futures, options etc. to achieve short-term financial goals. So, for example, if a sector is performing well, an investor will try to make the most of it by investing in it to maximize benefits in the short-term.
Passive Growth Investing
Meant for investors with a long-term horizon and moderate risk appetites, passive investing is about buying and holding for the long-term. An investor does not actively participate in the market for short-term profit bookings; rather their involvement in the market is limited. He prefers to invest in low-cost investment products such as index funds and remain invested for compounded growth.
This type of investment style is meant for investors who seek fast growth. They prefer investment products that are undervalued and therefore provide high possibility of return.
This style is meant for early jobbers or young investors who seek high growth for their money through long-term investing. The growth investing style is for risk-prone investors who are ready to put their money in the market for a long-term despite volatility. This is similar to passive investing but has a few elements of active investing as well.
You must have heard this adage, “Do not put all your eggs in one basket”. Diversifying investing style is all about that. It is a portfolio balancing investment strategy where invest in a mix of asset classes and investment instruments ranging from the high-risk to the low-risk to get the best of all worlds while mitigating your risks. A diversified portfolio helps an investor remain in control in any market situation. For instance, if you have chosen mutual fund investment, you can spread your money across equity and debt schemes to get a mix of aggressive and safe returns. However, do remember to have a balanced approach as over-diversification results in lower overall returns and tracking becomes an issue.
‘Invest and Hold’ Strategy
Like passive and value investing, the investor invests their money in a devalued stock and holds it for the long-term. Eventually as the stock appreciates, the investors garners high returns over the long-term.
How To Know Which Investment Style Works For You
The investment styles defined here are tailored for specific purposes and suitability in accordance to an investor’s risk appetite and returns expectation. You should take a call on following any investment style as per your financial goals. For example, to reduce your risks, you can opt for diversified investing, where you can spread your investments across various products so that if one fails or provides low returns, the others can come to your rescue.
Your financial goals have a crucial role to play in your investment style. However, ensure you review them periodically with changes in your age, income, and family requirements. Once you draw the contours of your financial goals, review your investment strategies so that they can help you in achieving your financial goals.
The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.