The different investment strategies 💰
Monday, 5th July 2021 by Gotrade
Hey Gotraders,
Happy Monday! The US stock market is closed today because of Independence Day. We will be back in your inbox with market updates tomorrow.
Let’s take a look at investment strategies for today. There are generally four different types of strategies that investors use. You may already be familiar with some of them. Let’s dive in!
Value Investing 🛒
Value investors are bargain shoppers. They look for stocks that they believe are undervalued, meaning stocks with prices they believe are below the intrinsic value of the security. This strategy is designed around the idea that when you buy a share, you are actually buying a part of a business. Value investors believe in the long-term potential of the company. Value investors stand to gain if they hold these stocks for a long period of time. Warren Buffett is the ultimate value investor. He believes in buying undervalued stocks and giving them a chance to appreciate over time.
Growth Investing 🧐
Growth investors want investments that offer strong upside potential when it comes to the future earnings of stocks. It could be often be said that growth investors are looking for “the next big thing.” There must be evidence of strong demand for the company’s goods or services if it’s going to grow. The company should also have a consistent trend of strong earnings and revenue signifying a capacity to deliver on growth expectations. A drawback to growth investing is a lack of dividends as these companies usually retain their capital and use the money to grow and expand their business.
Momentum Investing 🏄♂️
Momentum investors ride the wave. They buy stocks on an uptrend and short stocks on a downtrend. Momentum investors look for patterns in stock prices to guide their purchasing decisions. Momentum investors need to be ready to buy and sell at all times. A momentum strategy may be profitable, but it comes with limitless downside risks associated with short selling.
Dollar-Cost Averaging 🔁
Dollar-cost averaging (DCA) is the practice of making regular investments in the market over time. For example, an investor may choose to put a fixed amount in an investment account every month. The benefit of DCA is that it avoids the ill-fated strategy of market timing. With the DCA strategy, investors capture prices at various price levels. This effectively lowers the average cost of each share. This strategy is suitable for investors with lower risk appetites as it keeps investors committed to investing while reducing the levels of risk and effects of volatility.
Why is this important? Every investor should figure out what strategy they are comfortable with, and what works best for them. Some investing strategies require more time commitment than others. For example, momentum investors need to keep an eye on their positions at all times and be ready to react when markets are volatile whereas investors using dollar-cost averaging may not need to keep a constant eye on their portfolio.
That’s all from us for now.
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