Four steps to creating a good investment strategy
Creating a good investment strategy has been a good way to go with all investment schemes. This does not only grant clarity on what you are aiming for, but it also helps you make actionable plans on how to reach your financial goals.
There are numerous testimonies of average individuals who turned to become the ‘wolf of wall street’, but this level of growth and advancement was not a product of chance and hope but the rewards of a detailed, written, and realistic investment strategy.
To help you maximize your rewards and profits in the investment market, this guide will offer you four steps to creating a good investment strategy.
What is a good investment strategy?
A good investment strategy is an actionable, detailed, and flexible plan that comprises a set of proven principles that help an investor accumulate more profits and reach their financial goals.
An investment strategy is defined to be good if it maximizes your potential returns as profits while reducing your risk and eliminating unforeseen losses.
There are possibilities that you might have stumbled on a personal investment strategy template but learning how to create your investment strategy will do you great good in the investment industry.
Markets and economies are not stable; this makes investment strategies ever-changing. Wise investors follow market trends closely while making amendments in their strategies.
Draft an investment plan according to your financial goals
The first step to creating an investment strategy is to write down your plans, goals, and expectations in a clear and detailed statement, and you must be able to define what you want and why you are investing.
Writing down a draft of your investment strategy helps you define your objectives.
Make your investment strategy flexible
You might wish to take up a long-term investment journey, but there is no assurance that the market will remain the same over the years.
There will be periods when value investing could seem more favorable than growth investing, value investing, income investing, dividend growth investing, or passive and active strategies.
A good investment strategy should take note of market fluctuations and provide a balanced approach to handle them.
Understand your risk tolerance
Most times, risk tolerance is attached to the age of the investor or preferably the duration of the investment. Whichever way it goes, you must figure out how far you can go with taking risks and be able to know your limits.
Asset allocation involves the deliberate split of your investment categories i.e assets. You get to divide how you split between mutual funds, bonds, stocks, and other types of investments. You decide the risk involved with each and how you wish to diversify them in your portfolio
However, creating an investment strategy should take into account the steps involved in investment processes and the different types of strategies.
What are the steps in the investment process?
- Understanding the client and their needs
- Asset allocation
- Portfolio research and selection
- Portfolio evaluation and performance monitoring
What are the five investment strategies?
- Value Investing
- Income Investing
- Socially Responsible Investing
- Growth Investing
- Small-Cap Investing
These strategies are also known as portfolio strategies. They are incorporated into your plans to build a strategy that works for you and fits your business model.