When you start investing on your own, the world of investing may seem wide, often too wide. But you can simplify things with some time-tested strategies. A solid investing strategy can lead to good returns over time and allows you to focus on other parts of the investing process or even makes investing so easy that you can spend more time on what you love to do.
Here are five popular investment strategies for beginners, along with some of their advantages and risks.
Top investment strategies for beginners
A good investment strategy minimizes your risks while optimizing your potential returns. But with any strategy it’s vital to remember that you can lose money in the short run if you’re investing in market-based securities such as stocks and bonds. A good investment strategy often takes time to work should not be considered a “get rich quick” scheme. So it’s important to begin investing with realistic expectations of what you can and can’t achieve.
1. Buy and hold
A buy-and-hold strategy is a classic that’s proven itself over and over. With this strategy you do exactly what the name suggests: you buy an investment and then hold it indefinitely. Ideally, you’ll never sell the investment, but you should look to own it for at least 3 to 5 years.
Advantages: The buy-and-hold strategy focuses you on the long term and thinking like an owner, so you avoid the active trading that hurts the returns of most investors. Your success depends on how the underlying business performs over time. And this is how you can ultimately find the stock market’s biggest winners and possibly earn hundreds of times your original investment.
The beauty of this approach is that if you commit to never selling, then you don’t ever have to think about it again. If you never sell, you’ll avoid capital gains taxes, a return killer. A long-term buy-and-hold strategy means you’re not always focused on the market – unlike traders – so you can spend time doing things you love instead of being chained to watching the market all day.
Risks: To succeed with this strategy, you’ll need to avoid the temptation to sell when the market gets rough. You’ll have to endure the market’s sometimes-steep falls, and a 50 percent or greater drop is possible, with individual stocks potentially falling even more. That’s easier said than done.
2. Buy the index
This strategy is all about finding an attractive stock index and then buying an index fund based on it. Two popular indexes are the Standard & Poor’s 500 and the Nasdaq Composite. Each has many …….
Source: https://www.bankrate.com/investing/investment-strategies-for-beginners/