Investment strategies can be defined as the way of thinking that shapes how a person chooses the investments in their portfolio. Kavan Choksi mentions that a good investment strategy should help a person to meet their financial goals, as well as grow their wealth while maintaining a level of risk they are comfortable with. The chosen strategy would influence many factors, right from the assets chosen by an investor to how they would buy and sell off those assets.
Kavan Choksi marks a few strategies that can help newbie investors
As a person gears up to start investing, a good rule of thumb is to get a few basic questions answered. The investors should be fully aware of their investment goals, by when they are likely to retire, how comfortable they are with risk, and so on. They should also try to determine whether they want to invest in stocks, bonds, or an alternative. Based on their priorities, newbie investors can explore the following strategies:
- Start with a new or existing retirement account: Opening or accessing an individual account, or even an IRA through a brokerage account would be a good way to get started with the investment journey. But one should always remember to select investments that are aligned to their goals. If they already have a retirement account through they may contribute to that 401(k) first and qualify for the company match.
- Buy-and-hold investing: This strategy is followed by an investor if they feel a certain investment would perform well over multiple years. People following a buy-and-hold strategy should not get rattled when the market drops or dips in the short term. Rather, they need to hold onto their investments and stay the course. Buy-and-hold strategy can only work if the investors believe in long-term potential of their investment through those short-term declines.
- Active investing: Active traders are the ones who trade frequently and capitalize on market fluctuations. These traders may use technical analysis to more efficiently anticipate where market prices might go. This analysis involves the study of past market data like trading volume or price trends. Active trading is a pretty expansive sphere, and has many strategies associated with it. These strategies can include momentum and event-driven approaches, or be based on pricing like swing or spread trading. Momentum investing usually seeks to identify and follow trends that are in favor currently in order to profit off of market sentiment. On the other hand, event-driven investing strategies are more focused on capturing pricing differences during corporate changes like mergers and acquisitions.
Kavan Choksi points out that it is not easy to time the market right consistently. Going for a dollar-cost strategy can be well-suited for investors who are unsure of timing the market right but do want a good entry point into the market. Investors following this strategy tend to spread their stock or fund purchases out over time, purchasing the same amount at regular intervals. This allows them to “smooth” out the purchase price over time. After all, they buy more shares when the stock price is down and fewer shares when the stock price is up.
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