3 Basic Investment Strategies to Learn in 2019
Financial strategies are guidelines on what financial decisions to make. They are rules, processes, or best practices designed to help investors clarify what to invest in and what particular tactics should be used to build wealth.
For example, a Tactical Income Strategy seeks capital preservation with an emphasis on income generation.
“Reducing the level of risk while giving fixed income investors the opportunity to increase their potential returns is the major reason we created the Tactical Income Strategy as our primary focus,” said a spokesperson for Hilton Capital Management.
Hilton Capital Management is a privately-held investment firm. Founded in 2001 the firm manages roughly $1.6 billion in balanced and equity strategies.
Generally, investment strategies can be broken into three broad classifications: passive, active, or contrarian. Within each bucket are many individual strategies.
photo/Gerd Altmann
Here’s a high level overview:
- Passive Investment Strategies
Buy-and-hold is an example of a passive strategy.
When using a buy-and-hold concept, an investor buys company shares and holds them for a long time. The basic premise is that everything will work out in the long run and the equity market will eventually yield a good return despite alarming episodes of volatility. An investor who uses this strategy believes that the market cannot be timed and all such suggestions are based on blind optimism.
Since it’s nearly impossible to determine the exact low to buy and the best high to sell, sometimes it is better to just buy and hold an asset.
It saves time and energy once it’s set in motion. Revisiting the reasons for personal finance decisions and tweaking are unnecessary. It also minimizes the cost of doing business, reducing transaction costs for buying and selling securities.
- Active Investment Strategies
An active strategy—for instance, momentum trading—takes just the opposite position. An active investor thinks a wait-and-see approach to wealth building is leaving money on the table. They are all for well-timed, precise action.
Momentum trading is all about watching the markets and then trying to outperform them. An active investor will watch the market and buy assets at a bargain price. Later, he or she will sell when the time is right. An active investor has confidence in their skill to estimate market behavior.
- Contrarian Investment Strategies
A contrarian investor will select a promising company when the market is down, buy a lot of shares, and then make a profit when the market corrects.
The late John Templeton is a classic example of an investor who took the road less traveled. Working on Wall Street in 1939, he studied companies, industries, and even countries that were hitting bottom due to their pessimism about the future because of the Second World War. Legend has it that he bought shares in more than a hundred companies at a dollar or less. Years later, in 1945, when peace returned, most of these companies made a profitable comeback, rewarding him with huge profits.
The rules of success for contrarian investing are fairly straightforward:
First, find a company in a growing industry.
Second, evaluate if the company is strong enough to ward off competitors.
Third, the company’s earnings should be on an increasing trend.
Fourth, the company should have a record of providing investors with consistent returns.
Fifth, the company should be able to adjust its cost in respect to inflation.
The financial landscape is ever-changing and the best piece of advice is to work with an advisor who has experience, discipline, integrity and a strong investment process that will succeed in any market dynamic.
Author: Blair Nicole
