An investment style, commonly referred to as an investment strategy or investment philosophy refers to the approach taken by you or the fund manager when assembling a portfolio of assets and how they intend to meet the fund’s stated objectives. Certain investors and fund managers stick to a particular style of investing while others may use a combination of different investment styles.
Let us discuss some of the most popular investing styles –
Active style of investing is usually chosen by investors who wish to take advantage of the present situation. If one can spare the time to take greater risk and keep an eye on market patterns and movements, active investing is the right choice for them. This approach is used to make short-term gains by picking particular stocks and using them to outperform the market.
1. Passive Investing
Passive investing might be the right strategy for you if you are risk-averse and do not wish to spend much time watching the price movement of any stock or index. Passive investors put their money into investments over a long period of time. Passive investors generally believe in market efficiency and adopt the buy-and-hold strategy.
2. Growth Investing
Growth investing is a strategy used by investors when they believe that a company will grow in the coming years and that a stock’s intrinsic value will increase over a period of years.
3. Value Investing
Value Investing refers to investing in a company based on its intrinsic value. When there is a correction in the market, the value of undervalued companies will be corrected and the prices will increase. This will leave more room for the investors to earn significant returns when they sell.
Value Investing refers to investing in a company based on its intrinsic value. Value investors buy stocks trading at or below their intrinsic or fair value. This provides a margin of safety when the unexpected happens.
4. Buy and-hold
One of the most suggested and preferred investing styles is the buy-and-hold strategy. An investor who adopts this strategy will not exchange their portfolio frequently. Such investors wish to create wealth in the long run. The concept behind this investing style is to invest in stock while its price is still low to profit from the stock’s price increasing over time.
5. Multi-Asset Investing
Multi-Asset Investing means combining different asset classes as it can result in higher risk-adjusted returns. The greater the number of asset types in an investment portfolio, the lower is the volatility and portfolio risk. Stocks, cash, bonds, real estate, commodities, hedge funds, private equity funds etc. may be included in a well-diversified portfolio.
This also helps in diversifying the stock portfolio and this strategy can be used in combination of other investing styles to reap maximum advantages.
6. Market Capitalization
Market capitalization refers to the number of shares of a company with the outstanding shares multiplied by the share price. Some investors use this investing style because they believe that small-cap companies should be able to deliver better returns, owing to their greater growth opportunities and agility. Investors who wish to adopt the investing style based on market capitalization must be comfortable with taking additional level of risk, if they wish to generate higher returns.
Indexing is another strategy to invest passively. Indexing is done by investing in index mutual funds or exchange-traded funds, which track the performance of a benchmark index such as the Nifty 50 or Sensex. This investing style helps in building a portfolio that resembles the companies that make up a specific stock index.
8. Dividend Growth
Also known as yield investing, dividend investing aims to provide a steady income stream as stocks with high dividend yields are very profitable. As a dividend investor, one should select companies with a high yield that will be able to pay dividends in the future. Moreover, a yield portfolio can generate more returns and capital growth if dividends are reinvested.
9. Momentum Investing
This investing style is similar to growth investing except for the fact that instead of focusing on profits or sales growth, investors focus on the stock’s price momentum. Accordingly, the best performing stocks in a specific period can outperform in succeeding ones. Only price action is used to make buying and selling decisions in this investing style.
When it comes to achieving one’s investment goals, they should ask appropriate questions as this will help them in selecting which road to take. You can also connect with mastertrust to ascertain which investing style suits you and make the most of it.
Clearly defining your investment style will help you stay focused and also enable you to select investments for long-term and allow you to apportion allocations in the right brackets.