investment strategy

What Are The Best Investment Strategies?

Long-term and short-term investment strategies guaranteed to show results!

When it comes to financial advice, it’s hard to answer the question “What is the best way to _____” by using a one-size-fits-all answer that applies to everyone. When you get into the field of investing, answering that same style of question gets even more difficult when you’re trying to please a group of individuals.

Different people have different needs. One person may be investing with the long-term goal of retiring. Another may just want an effective way to save up for a down payment on a home in a couple of years. You might make $100,000 whereas another reader is 19 years old and working 25 hours per week barely making minimum wage.

Think of investing as a workout plan. Some people work out to stay healthy. Others work out to become more athletic. Then there’s the group that works out solely to put on muscle mass. All of these people have an objective: to go to the gym and work out (invest) but their long-term and short-term goals will vary greatly, just like the goals with investing.

When trying to find the best investment strategies, you need to remember the gym analogy. Just because something is working amazingly well for somebody else, that doesn’t mean it’s right for you. The best thing you can do for yourself is to learn a few different strategies, educate yourself about why these strategies work, and then see which one fits into place with your short-term and long-term goals.

Identify your goals

If you’re seeking out the best investment strategies, there’s a high chance that you may be new to investing in general, and that’s okay! But one step that is commonly skipped amongst new investors is that they don’t identify their goals. And, no, “I just want to make a bunch of money without risking much!” is not an investing goal. Here are some common examples:

Short-Term Investing Goal: Saving up for a down payment on a new home. This takes consumers an average of 2-3 years to complete. Although 2-3 years seems like a long time, it’s still considered short term in the world of investing.

Medium-Term Investing Goal: You have a new baby and want to make sure that their college is paid for. This can take 10, 15, 18 years to complete. Many investors don’t recognize medium-term goals and would see this as a long-term goal.

Long-Term Investing Goal: To have a retirement fund that will ensure you can live at or above your current lifestyle. Many people start a retirement fund in their 20s or 30s and don’t retire until, on average, the age of 62.

Of course, these are just examples. Your investing goals may be wildly different. The point is that you need to understand what your endgame is here. A 25-year-old graduate who simply wants to save for retirement can make some risky moves early on, because he will have 40 years to make up for any potential losses. Someone who is only investing for a year or two before they need their principal back probably shouldn’t be taking any huge risks.

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Watch Out For Scams!

The first investment strategy isn’t really a strategy, but it’s something you should know. Seeking out money-making strategies can open you up to a world of scams, and we want to help prevent that for you. We hope that our guide here today will be enough to get you going, but should you end up seeking out advice elsewhere, you should always keep this in mind:

  • There are no top secret get-rich-quick investment strategies that you can buy for $99. If any of these money-making strategies were so effective, why on earth would someone try to sell them for a few bucks?
  • Getting returns of 10%-12% or higher on a regular basis is absurdly difficult. If anyone out there is promising you consistent, annual returns in the double-digit figures then I would be extremely skeptical.
  • You aren’t going to find some hot new stock tip on somewhere like Facebook or Reddit. People might get lucky, but it’s not a strategy. You should get in the habit of doing your own due diligence, your own research.

Retirement Accounts & Compound Interest

Long-term investment strategy

I know, I know. These aren’t the super-exciting investment tips you wanted. But be patient with us. There are readers out there who simply need to know that retirement accounts are imperative for those with long-term investing goals.

Compound Interest is the best-kept secret of millionaires. The caveat is that it truly takes time to realize amazing gains. Based on figures from the Investor.gov Compound Interest Calculator, we can show you why a retirement account is important:

The average rate of return on a properly managed retirement account came in at around 8% over time. Some years it saw 5%, some years maybe 11%, but 8% is the average. Let’s say you got paid twice a month and put $250 from each paycheck into the retirement account that you opened up with $1,000 bucks.

You started this account at your first “grown-up job” out of college and contributed regularly over 40 years. By year 40 you will have contributed $241,000. Because compound interest is so amazing, you will be left with well over $1.5 Million when you hit 62 years old. Waiting just 5 more years until age 67 will have your account at over $2.3 million dollars.

Why such a big jump between ages 62 and 67? With compound interest, you’re making interest on your interest, if that makes sense. By using “the power of 72” if you take the number 72 and divide it by your interest rate, the answer is how many years it will take for your investment to double in value. In the case of 8%, your investment should double in value every 9 years when interest is compounded annually like it is with more retirement accounts.

Use your company’s 401K! Many employers will offer employee matching for what they contribute. You should be contributing however much your employer will match. If they’ll match 6% of your salary, then contribute 6% of your salary!

Get an IRA (Individual Retirement Account)! Yes, you most likely qualify to have both an IRA and a 401K at the same time, but you need an IRA at the very least Using the tax benefits of an IRA and the compound interest it provides could mean you retire as a millionaire by just stashing away a few grand each year.

TIP! Use the free, powerful financial planning tools from Personal Capital to take control of your financial life and get objective advice from their fiduciary financial advisors.

Index Funds & Cash Investments

Short-term investment strategy

Another way to look at short-term investment strategies is by simply considering them an effective way to save money. There is no get-rich-quick investment strategy, so don’t think short-term investing means you’ll just earn more money in a shorter period of time.

Rather than looking at short-term investing as a good savings strategy, you may also want to see it as a preservation strategy. If you’ve got a lump sum that you’re about to spend a year or two from now, you don’t want to dump it into risky stocks. You want to preserve that money while still earning a bit of interest.

Similarly, someone who is a few years away from retirement has had their time-horizon goals shifted. They started investing in their retirement decades ago as a long-term strategy, but now that retirement is almost here, their goals have now become short-term goals.

Having said that, let’s take a look at some very effective ways to save your money while safely earning the most amount of interest possible.

Vanguard Index Fund – Index funds are a certain type of mutual fund that lets many investors pull their money together to purchase shares that track some sort of benchmark index. For example, you can get an index fund that tracks the index of the S&P 500 (the top 500 stocks on the Standards and Poor market). Because these funds are made up of stocks in many different companies, you’re already taking advantage of a diversified portfolio. The funds are designed so that if some of the companies within the fund start to lose value, the other companies involved will pick up the slack.

Cash Products – Mutual funds still carry some risk to them, but for those who want a short-term solution that has little-to-no risk then some of the cash-based products at a bank or a credit union may be what you’re in the market for. These items carry an extremely low risk. Even if the bank were to fail, you’re still insured for at least $250,000. Some of these products are:

  • Certificates of Deposit – You agree to let the bank tie your money up for any amount of time. It could be 1 week or it could be 5 years. The average is 12 months. This is a great option when interest rates at banks are fairly high because your CDs rate will be guaranteed, regardless of how the economy swings. Because your money isn’t as liquid as it would be in a savings account, you can expect to earn more in interest.
  • Money Market Account – These are accounts at your bank where all of the depositors’ funds are pooled together and invested in various avenues, like short-term corporate loans and CDs, so you can expect to earn more interest than that of a savings account. Money market accounts are also insured by the FDIC, so you won’t lose your money should something go wrong.

Dollar-Cost Averaging

Dollar-cost averaging (DCA) is when you make regular investments in various areas of the market over time. It can even be part of another strategy that you choose. You may follow one of our advanced strategies below and as long as you’re making regular contributions, you’re probably following the DCA strategy.

Even if you put in a low amount, like a few hundred bucks per month, you can still enjoy the benefits of dollar-cost averaging. The market will trend upwards over time, it’s what it does. By regularly contributing to your investments, you don’t have to worry about timing the market. There is no stress of buying low and selling high.

Whenever you invest on a regular and consistent basis, you get to take advantage of your investment at all price points, whether it be low or high. Believe it or not, investing $300 per month regularly is much safer than doing $3,600 all at once.

Making regular contributions to your retirement account is a great example of DCA at work.

Undervalued Stocks

Another great long-term investment strategy

Warren Buffet has used value investing as a way to make himself ultra-rich many, many times over. His strategy for decades has been to find stocks that he believes are undervalued. Now, it’s the 21st century so combing through thousands of pages of financial documents and income reports is not the only way to find out if buying a company’s stock will be a bargain or not.

Whenever a company releases its quarterly or annual income report, you can divide their profits by the number of outstanding shares on the market. This gives you what’s called the Earnings Per Share (EPS) calculation. Whenever you divide the current stock price by the EPS you get the company’s Price-Earnings ratio (P/E).

A lower P/E could mean the potential to get shares in a company for less than they’re actually worth. This is exactly how Buffett has managed to find some of the best-undervalued stocks to have ever existed. Imagine if you had found Coke or McDonalds stock back when it was undervalued.

This is a long-term investing strategy because you have to be able to hang in there for the long haul while you wait for the market to catch up with the profits and revenue the company is bringing in. Remember, stocks are basically priced based on supply and demand. Just because a company is doing well with their revenue doesn’t necessarily mean their stock prices will go up if the market hasn’t realized what this company has been up to.

There are various growth strategies out there, but studies consistently show that investing in undervalued stocks like this will, on average, outpace that of any growth investing strategy. However, that doesn’t mean that growth investing isn’t a bad deal!

Growth Investing

A long-term strategy looking for the next big thing

I know it seems like we’re covering more long-term strategies than short-term, but there aren’t many short-term strategies that are as effective. Let’s take a look at another long-term investment strategy called Growth Investing.

Instead of looking for undervalued stocks, growth investors are always on the lookout for stocks that show a huge potential based on the future earnings of that stock. These guys are essentially hunting for the next big thing.

Think about a company like Netflix. They did not exist 20 years ago. 10 years ago they were barely a blip on the radar. Today, they are an industry-leading giant. This is a great example of a stock that, while relatively unknown some time back, outpaced the market significantly.

This takes a little bit of speculation mixed with some experience and a keen eye. Take a look at your bank or credit card statements. Do you have any repeat purchases for companies that weren’t really a thing 10-20 years ago? One notable example is how Americans are much healthier these days. They’re more likely to have a fat-free latte from Starbucks than they are to stop by McDonalds for a Coke.

Societal Trends and Growth Stocks – The best potential growth stocks are those that benefit from changes in our society. Hardly anybody has a landline phone these days, and cell phones make it easy to block telemarketers. The mailbox isn’t used as much because everything is electronic, so junk mail isn’t nearly as effective.

This blow to the cold-calling and junk-mail industries means that society has changed. Now advertising is done online because that’s where people are. So a bit of research shows that a company named Hubspot is a great way for businesses to market to you. Since junk mail and telemarketing is dying, Hubspot is seeing tremendous growth as a result.

Using the P/E formula from above, looking at a company’s market cap, and following closely to trends and changes in society are the best ways to identify growth stocks that show huge potential.

Diversify With Commodities

A great long-term and medium-term strategy

Whenever the stock market is in a rut, almost everybody suffers. Those random stocks you bought on a whim suffer, and your retirement accounts likely suffer. A great way to hedge against something like this is by diversifying your portfolio with commodities.

Commodities are raw materials that we need to make the world go round. Natural gas, pork, and gold are all commodities. Now, let’s get one thing straight, commodities are not immune to market fluctuations. But because they are priced based on the needs of the population, they’re a nice way to mix things up a bit.

Let’s take a look at gold. Many people invest in gold as a way to protect themselves against inflation. As the value of the dollar changes, so does gold. When the U.S. dollar loses value, gold will traditionally gain value.

How do you buy commodities?

Some commodities, like Gold and Silver, can be physically bought in their purest form. But what about a commodity like natural gas or oil? You can just go buy a barrel of oil and stash it in your garage for a few months. One of the most common ways for beginners to get their foot into the commodities market is with mutual funds or ETFs (exchange-traded funds).

Even better is diversifying with different types of commodities whenever you add them to your portfolio. What types of commodities are ‘good’? Well, we can answer something right now that may not be true for someone reading this article in a couple of months.

  • Gold – The most well-known precious metal out there. As we mentioned earlier, it’s a great way to protect your portfolio when the purchasing power of the dollar goes down.
  • Oil – When it’s good, boy is it good. Many investors out there have become millionaires or billionaires simply by investing in oil commodities. However, oil overall can be risky depending on how the economy is doing. At its lowest point during the Covid-19 pandemic, oil was at -$30+ per barrel. Yes, NEGATIVE. It costs money to store this oil and those procuring it were having to pay to have the oil taken off their hands.
  • Wheat – It may seem kind of dull and basic, but wheat is necessary when it comes to feeding the world. As populations increase, more wheat is needed. Wheat commodities are also good during times of great weather as farmers are able to procure more of it

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Beware Of Emotional Investing

Emotional investing is going to creep up on you if you’re just starting out. It typically shows itself in two ways:

  • Greed – You see other people out there making so much money on a particular investment and you want to jump in on it as well, only to get stuck in a position where you buy high and have to sell low. Think about the dot-com bubble of 2000. People saw investors getting rich with these new tech companies and decided to jump on the bandwagon, only to lose A LOT of money in the process.
  • Fear – Getting scared that you’re going to lose too much money so you sell despite being at a loss. In March of 2020 as Coronavirus was killing the markets, many retirees drained their IRAs for a substantial loss out of fear. As the market made some great rebounds they were not able to take advantage of these gains because their portfolios had been liquidated

Investing takes a lot of discipline. It’s hard not to let emotions get in the way. The most important things you can do for yourself are to be consistent and to make decisions based solely on logic and facts.

We explain how you can make money, save money and grow money.

Make money: learn how to build wealth and how to earn money from the internet.

Save money: learn how to save money and how to make budget plans.

Grow money: learn how to invest and trade.

Please note that under no circumstances should any information from this blog be used as replacement for professional financial advice.

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