Success in investment is impossible without a well-thought-out strategy. Each investor must correctly divide investments. A competent investment strategy is key to wealth.
All existing strategies are based on two indicators:
- return on investment;
- the magnitude of potential risks.
Types of investment strategies
There are 4 types of strategies:
- conservative (sometimes called “passive”)
Considering them, we can deduce a direct relationship: the higher the profit, the higher the risk.
This is the most accurate strategy. It implies the lowest return and the highest investment protection. This approach is sometimes also called conservative. Here, you can expect a profit above 5-10% per annum but no more. At the same time, the risk of the capital loss is almost completely eliminated.
The investor’s passive instruments include:
- bank deposits;
- government bonds;
- buying gold;
- investments in real estate;
A bond is a standard note. They offer a guaranteed income of 0-15% per annum.
Valuable metals are gold, silver, platinum. Their value becomes higher over time because the reserves of precious metals are almost not replenished (only near 1% per year). If a business can go bankrupt and stocks go bankrupt, investing in gold hasn’t ruined anyone yet. Although precious metals are not profitable in the short term, they have maximum reliability. The standard term of investments into precious metals is 5-10 years. During this time, (with a successful combination of circumstances), income can be increased almost several times.
Investments in real estate. Money is invested in building or finished houses. After that, the object is simply rented out. It is not necessary to count on high profitability. If you buy an apartment for $200,000 and rent it out for $1,500-2,500 a month, your investment will double in 40 years.
By choosing it, you can count on a higher level of return on investment. The return can be up to 50%.
Moderate investments are no longer considered as safe as conservative ones.
This type of financial instrument includes:
- investments in stocks from the S&P500 or in the index;
- investments in microfinance organizations;
- high-profit ETF mutual funds;
- asset management through the fund, API Management
Investment in S&P500. The S&P500 is a stock market index that takes into account the value of shares of the largest American companies. Any stocks from this list are bought, in proportions chosen by the investor. Or you can buy the S & P500 itself. The average profitability of the index is 20-30% per annum. But the result can be negative in years of economic turmoil. The final profit depends on a properly selected shareholding.
ETF is a mutual fund. You are not buying any stock. The managers do it for you. You buy the securities of the fund. On the one hand, it is beneficial – the securities will be bought for you (in the funds, this is done by specialists). And also safe – if this is a famous ETF in a good jurisdiction, you will be protected by a government regulator or a deposit guarantee fund. But there are significant disadvantages in such investment – you have to trust the decency/competence of the owners and managers. There is also a lock-up period and a management fee.
Classic funds have almost the same disadvantages and advantages as ETFs.
API Management of your assets on the exchange. The main advantage of such an approach is that the money remains in your account. The risk of money theft by unscrupulous management is completely eliminated. There is no lock-up period. There is no mandatory annual management fee. But the main question is how to choose the right manager and make sure of his competence.
Here, the minimum rate of return is started from 50% per annum. There is simply no upper limit. It can be 1000% and 5000%. But this strategy is very risky. The tools of an aggressive investor include:
- investments in financial pyramids;
- venture investments;
- investments in PAMM accounts;
- investing in cryptocurrencies;
- currency trading with high leverage.
Investing in cryptocurrencies using the portfolio method. Cryptocurrencies are a super-risky asset. The schedule here resembles a roller coaster. There are also 3 types of assets: conservative, moderate, aggressive.
Conservative cryptocurrencies include the pillars of the market – Bitcoin, Ethereum, etc.
Moderate assets are coins that are actively traded on exchanges and show good dynamics.
Aggressive instruments are unpredictable newcomers to the market who are still at the stage of fundraising or are just undergoing accreditation on exchanges.
If you are a novice investor, we do not recommend investing in cryptocurrencies on your own. This market has very high volatility, and there are many scammers here. It is better to entrust the management of your portfolio to professionals. The FOBS investment fund operates on the principle of an API Management account.
Most investors do not use just one strategy. You need to understand, that measure is needed in everything.
The main task of each investor is to find his own optimal strategy, which will depend on financial capabilities, characteristics of the psycho-type of his personality. There is no just one right answer here. Many people have to look for the optimal balance between methods, markets, and tools for years.
But what to do for those investors who are not ready to spend years looking for the optimal investment portfolio? The best option would be to come to professionals who will form the portfolio for you.