Investment strategy: Finding the right path for you
Finding the best investment strategy for you depends on your situation and requirements. Factors like risk tolerance, liquidity, and your overall objectives all come into play. There’s no single rule book that everyone can follow. If there were, we would all be millionaires by now. In a world dominated by digital financial technology, both the challenges and opportunities inherent in investing are rapidly increasing.
For young adults, having an investment strategy is essential for future prosperity. Fortunately, there’s a diverse range of strategy options available to you, and it’s never too late to start.
What is an investment strategy?
Before investing your hard-earned cash, forming an investment strategy to guide your decisions — where and when to invest your money, when to buy and when to sell — is essential for your success. Unfortunately, inexperienced investors eager to “get in the game” without defining their long-term investment strategy tend to make crucial — and costly — mistakes.
So, what is an investment strategy? According to Investopedia, the meaning of investment strategy is “a set of principles designed to help an individual investor achieve their financial and investment goals.” In other words, your investment strategy should inform every single decision you make as an investor.
When developing your investment strategy, the key factors to consider are:
- Risk tolerance: This is where one of the golden rules of investing comes into play: “Only invest what you can afford to lose.” If sudden swings in the value of your portfolio make your stomach lurch, you’re prone to bad decision-making with your investments. Be honest with yourself in assessing your appetite for risk.
Age is often a significant factor for risk tolerance in investment strategy. An investment strategy for young adults is likely to be more aggressive and risk-tolerant than the strategy of someone in middle age or nearing retirement. The reason for this is simple: if you’re a young adult just starting out, you have far more time to make up for any losses you incur by pursuing a high risk/high reward investment strategy.
- Investment Goals: Whether you’re planning for retirement or a property purchase — or looking to become the next newly minted crypto millionaire — having a clear understanding of your long (and short) term investing goals is an essential component of investment strategy. Consider the time horizon also — how long are you willing to wait to achieve your investment goals?
- Available Capital: Thanks to cutting-edge fintech solutions — like fractional investing and peer-to-peer (P2P) lending — available capital isn’t the barrier to entry to investing that it was only a few years ago. No massive nest egg is needed to begin investing nowadays. You can start as small as you want and work your way up.
Investment strategy types
No matter your budget or temperament, there’s an investment strategy type to suit your needs. Here are some common investment strategy examples.
Growth investing – Investing in future growth potential
Growth investing is one of the most well-known investment strategy types. Growth investors usually look for companies — often relatively new ones — in rapidly growing industries. When you hear people say they wish they could go back in time and buy Apple or Amazon stock in the 1990s — it was mostly growth investors that did.
As a growth investor, you buy shares in a company with the expectation that you’ll be able to sell those shares for a higher price in the future.
Earnings from growth-stock companies are typically reinvested back into the business, so you’re unlikely to be paid shareholder dividends. Growth investors buy shares in companies they believe have substantial future potential for growth.
Active investing – High-risk and labor-intensive
Active investing is not for the faint of heart. The modern archetype of an active investor is the day trader — someone who lives and breathes the stock markets and makes hundreds of trades each day. Active investing is a full-time job, so unless you’re willing to go all-in, it’s not the right investment strategy type for you.
Of course, you can hire a money manager to actively invest on your behalf, but you’ll likely need a six-figure minimum investment and pay performance fees of between 10 and 20%. Many active investment managers operate hedge funds, where a starting investment of $250,000 is not uncommon.
Value investing: Investing Warren Buffett style — buying undervalued assets
Warren Buffet — the Oracle of Omaha and CEO of Berkshire Hathaway — is widely considered one of the greatest investors of all time. As of April 2021, Buffett’s net worth was over $100 billion, making him the seventh richest man in the world.
Value investing also has a well-established track record of success. Dating back to the late 1920s, it is arguably the oldest stock market investment strategy by age.
The fundamental principle of value investing is to buy assets — stocks, bonds, real estate, etc. — for less than their intrinsic worth. Value investing requires patience and a deep analysis of an asset’s — often shares in a business — underlying fundamentals.
There are numerous methods of analyzing whether an asset is undervalued. Two of the most common are Price to Book (P/B) ratio and Price to Earnings (P/E) ratio.
While the underlying proposition of value investing — buying something for less than what it’s worth — is about as basic as it gets, the level of analysis required to determine whether a large corporation is under or overvalued is an art as much as a science. And a time-consuming one at that.
For this reason, many people who choose to follow a value investment strategy purchase mutual funds rather than do the homework themselves. In recent years, growth investment strategy funds have outperformed value investment strategy funds, but there have been long stretches of time in the past where value investing has paid bigger returns.
One possible option for those looking to combine growth and value investment strategy types is an S&P 500 index fund.
Buy and hold: Playing the long game — Buying and holding blue-chip stocks
The buy-and-hold investment strategy is the most passive of the investment strategy examples we’ll explore in this article. If you have a 401-K through your employer or you’re self-employed with an IRA, you may have been told to more or less ignore the short-term performance of these retirement-driven investment vehicles.
According to investment strategist Joachim Klement: “Don’t look at your portfolio. The best way to invest for most investors is to become a buy and hold investor, buy a well-diversified portfolio that meets your needs, and then stick to it for a very long time through the ups and downs of the market.”
If your primary investment aim is to save for retirement rather than accrue additional wealth in the short term, this may be solid advice. After all, even after the Great Depression, the Dot.com bust, the economic meltdown of 2008 — or the recent Covid-19 pandemic stock panic — the stock market has survived and eventually hit new highs.
Many experts agree with Klement when he says that when it comes to your retirement portfolio: “Nothing that happens today, tomorrow or over the rest of this year will matter 10 years from now.”
However, if you’re looking for a return on your investment before you turn 65, buy and hold probably isn’t the right investment strategy for you.
Alternative investing: Wine, Peer-to-Peer (P2P) lending platforms, and cryptocurrency
It’s no exaggeration to say that you now have more options than ever before in history for investing and growing your hard-earned cash. The investment strategy examples outlined above mostly rely on traditional means of investing capital — like the stock market and real estate. But with the fintech explosion in recent years — and the advent of blockchain and cryptocurrency — the old ways of investing your money may no longer be the best.
Here are just a few alternative investment strategies that you should consider in addition (or instead of) the old-school investment strategy types we’ve already highlighted up top.
Who says “alternative” has to mean digital? Wine has been around for centuries longer than any stock exchange. And it’s not just for drinking anymore. If you have a nose for the grape, no doubt you know that wine can be pricey.
But did you know that two bottles of 1945 Romanée Conti French Burgundy fetched $558,000 and $496,000 respectively when auctioned by Sotheby’s in 2018? The record set by that sale may not last for long. In a decidedly modern twist, Christie’s is auctioning the first-ever bottle of PÉTRUS 2000 aged in space — for 14 months aboard the International Space Station. This space-aged tipple is expected to sell for upwards of $1 million.
But wine doesn’t have to leave our planet’s atmosphere for it to skyrocket as an investment vehicle. While the S&P500 crashed back to earth in a Covid-19 fueled nosedive — falling more than 23% in Q1 2020 — the Liv-ex Fine Wine 1000, an index measuring the price performance of the 1,000 most traded wines, fell only about 4%.
According to Tom Gearing, managing director of a $170 million fine wine portfolio, “Wine can be an incredible addition to a portfolio because it has a low propensity to lose value in a market sell-off. It can help investors diversify, to hedge, and to provide a safe haven” in times of market stress.
Peer-to-Peer (P2P) Lending Platforms
In stark comparison to wine, digital peer-to-peer lending platforms aren’t even of legal drinking age. But they’ve grown quickly to become a highly attractive investment vehicle. Also known as “social lending” or “crowd lending,” digital P2P lending platforms first appeared in 2005. As suggested by the name, P2P lending platforms facilitate linking borrowers directly with lenders/investors — “cutting out the middleman” of traditional financial institutions like banks.
Forward-thinking investors are increasingly adopting P2P lending platforms because they offer much higher rates of return than traditional financial instruments like a certificate of deposit (CD),bonds or savings accounts. Typically, P2p lending platforms are also much more flexible when it comes to how long your money must stay invested to accrue interest and with fees or penalties for early withdrawal.
Consider the MyConstant P2p lending platform. Unlike other P2P platforms, loans you make as an investor through MyConstant can be backed by liquid assets — namely established cryptocurrencies like bitcoin and ethereum.
With our platform, the borrower backs each loan with 150% of the loan’s value held by MyConstant as collateral in any one of the 70 plus cryptocurrencies we support. Therefore, if a borrower defaults, we sell their collateral to repay your principal plus earned interest. And since launch, not a single investor has lost a cent, proving the efficacy of our collateralization model.
Suppose the crypto being held as collateral loses value. In that case, MyConstant has sophisticated automated measures in place to sell the collateral before its value decreases below the principle of the loan plus any interest you have earned. In return, you can make up to 9% APR on your investment.
P2P lending platforms are still in their infancy in comparison to other investment vehicles. Some of the early P2P platforms like Lending Club have perhaps given the model a bit of a bad name. But the next-generation of P2P lending platforms like MyConstant work to protect your assets with services like Prime Trust.
No investment is 100% risk-free, but the MyConstant platform has sufficient mechanisms in place to protect against the volatility of the crypto markets.
It’s easy to be seduced by tales of newly-minted crypto millionaires. But investing directly in bitcoin, ethereum, Dogecoin, or any of the thousands of lesser-known cryptocurrencies is like active investing on steroids while you’re strapped to a rocket — a projectile you’re never quite sure is heading up or down.
Even bitcoin, the most accepted cryptocurrency, is highly volatile and prone to massive dips and spikes. Being far less established than the stock market, it’s arguably also far less predictable.
Like so many other investment opportunities, if you got into bitcoin on the ground floor — and held or sold at a peak — you’re probably very wealthy. But actively investing in bitcoin — let alone the less established coins — requires a huge appetite for risk. It also requires a high degree of technical knowledge for you to be an effective active crypto investor.
Bitcoin and other cryptocurrencies like ethereum are becoming more widely accepted than ever. Barring regulatory actions by world governments — and there have been interesting developments in that direction recently — cryptocurrency is likely to command an increasing share of investor’s portfolios in the future.
Do you have the stomach for sudden lurches in the value of crypto and the technical chops to compete with other crypto investors? If not, you might be better off investing in one of the many new fintech products, like MyConstant, that are fueled by cryptocurrency but offer safeguards against its risks. If you’re already holding bitcoin, Ethereum, or BNB, you can earn 4% APY with MyConstant Crypto Lend.
Identifying the right investment strategy for you
In today’s digital economy, there’s a myriad of investment options open to you. The key is to match your investment strategy with your objectives.
Consider the following factors.
- Your age: The younger you are, the more you might be willing to accept higher risk tolerance with your investments — in exchange for potentially higher rewards.
- Timeframe: Where do you want to be financially in 10/15/20 years from now? Or are you in the market for short-term gains?
- Diversification: Any intelligent investor would advise you to have a diversified portfolio. Refraining from putting too many of your eggs in one basket protects you against potential losses, makes you less subject to market forces, and increases your chances of a net positive return. It’s also a good idea to retain some degree of investment focus, since over-diversification could lead to diluted gains.
MyConstant is a good fit for any investment strategy
Whether you’re a high-risk growth or active investor or playing the long game with buy and hold, MyConstant’s investment model is designed to give you the right balance between solid returns and flexibility.
What you get as an investor with MyConstant:
- Earn up to 9% APR with fixed terms.
- A free $4,000 trial bonus for 15 days when you sign up and submit KYC documents within 30 days.
- Earn 4% interest on our instant access account.
- $15 cashback for each wire transfer over $1,000 (for US investors only).
Written by Sean Shuter
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