Top 3 investment strategies every new investor should be mindful about.
All of us pin our hopes that we accumulate so much money in our savings, but not that many of us are profoundly ready to invest. Isn’t it?? However, if you’re here inside this page, reading this blog…DRUM ROLLS!! You’ve taken that first step – the mindset to invest. Huge applause for that!!!
Well, I know, it might have taken a significant time for you to decide to invest (I’ve been there) rather than be sufficient with your penny savings. But before we step in to invest, we need to evaluate as to why we need to invest & how we can go about it. Don’t worry – I’m there…let’s slowly get aware of the few strategies available for us beginners.
But before that STOP and take some notes. Gee not from the blog, but your financial situation. Carry out some self-examination,
· Check for your present financial position
· How much are you left with in hand after monthly expenses and debts?
· How much from that balance funds are you willing to invest?
After you’ve found answers to the above, you are mightily ready to invest.
READY?? Give me a YES!! Let’s jump in…
1. Income Investing
Beginning with the most popular strategy. Any rational investor would want his cash inflows to maximize overtime, right? This strategy is focused on creating a portfolio to generate regular cash flows for the long term. The primary reason for people to take up this strategy is to construct a steady passive income.
The fixed income-bearing instruments usually fall under this strategy. Blue-chip stocks are generally safe, constant income-paying securities even during difficult times.
For Example - Mr. Dave earns, say $20,000. He somehow manages to accumulate $1 million. Now by opting for the income investing strategy which generates a 5% annual payouts, he generates a $50,000 in addition to his usual income. This ultimately shoots up his income to $70,000 annually. Now that’s how income investing works, you investor :)
Probably the reason why this strategy is a failure when it comes to wealth creation is the absence of compounding. You earn an additional sum, but reinvesting them could have earned you a fortune. Needless to say, this strategy is best for constant passive income without having to break your brains by building an additional source.
2. Growth Investing
I always want my money to snowball overtime – what about you!? Pretty sure you would want the same. Then yeah, growth investing is for us!! Growth investors look for the stock’s potential to multiply with time. Nobody knew electric vehicles would be the future until TESLA put their foot.
People, by and large, compare growth investing to speculative investing. But this is moreover like evaluating a company’s health, investigating their value, examining their financial records, etc. You can drop in money for the short as well as long term. If you see the growth potential probably for 3 years only – maybe you can sell it off after you presume the value will slide.
These stocks are usually in expansion mode and aren’t frequent with paying you dividends. They also fall on the higher side of the risk appetite. “If you are in your 20s and see huge potential for a company’s growth, fear not by the risk – go ahead and invest”.
3. Value Investing
I have to admit, ever since Warren Buffet came up with this game, people have been chasing it all way. Let’s put it this way – haven’t you had a feeling that the prices of stocks listed on stock exchanges could be under or overvalued? Of course, there is some amount of implausibility with their prices.
Value investors go microscopic for undervalued stocks in the market. Researching is the key.
Warren Buffet says – “Value investing is buying businesses and not just stocks”.
If you wish to play the long game and hold for a longer period – this strategy is your go-to. But wait – you don’t need to take your giant microscopes and dig deep to research.
Here’s one simple tool – The Price Earnings Ratio (P/E Ratio). This is a fundamental tool to identify the undervaluation of a stock. It is calculated by dividing the stock’s price by earnings per share (EPS). Value investors look for lower P/E ratios and test other parameters as well in order to check the ‘financial health’ of the company they’re looking to invest in. The process of ‘sussing out’ your investment is known as ‘due diligence’..
So there you go! You now know the 3 key investing strategies: INCOME, GROWTH or VALUE investing. Ofcourse, this list isn’t exhaustive. The above-mentioned are just the top ones. There are as many investing ‘strategies’ as there are colours :)
See you soon – until next time - “Happy learning and investing” Cheers :)
