Investment Strategy

The two important considerations for any type of investments are safety and profitability.
These two factors vary in degree from investment to investment.

A high-yielding investment is at greater risk than any low-yielding investment. However, one needs to strike a right balance between safety and profitability depending on their financial strength and risk taking ability.

A good investment strategy is a pre-requisite for a right type of investment as it helps in taking well-informed investment decisions without compromising safety and profitability.

There are various factors to be considered of an individual while formulating investment strategy such as financial strength, short term and long term goals, risk taking ability, available surplus funds, expected return on investments and prevailing market conditions.

Importance of Investment strategy

Return on investment (ROI) is often unpredictable. It depends on various factors such as investment climate, government polices, prevailing economic conditions, etc.

There is always a trade- off between risk and safety. High ROI is attached with high degree of risk and lower ROI with low risk. It is best to have a balanced investment strategy such that the investment is spread over both, high yielding but volatile and low yielding but stable investment avenues. Investment strategy is based on certain well-defined set of rules, procedures and guiding principles.

It helps investors in choosing the right type of investments and in reaping rich dividends without compromising safety and profitability. A well formulated investment strategy guides investors to structure their portfolio according to their strengths and weakness. In long term, this proves to be the right investment strategy.

Types of investment strategy

Investment strategy should always be flexible to accommodate prevailing market conditions. Traditionally, aggressive investors preferred investing on high yielding stocks; but the trend has changed now.

Mutual funds offer various safe and profitable investment avenues. There are many types of investment strategies. Passive investment strategy basically aims at decent returns and lower transaction costs. In active investment strategy, the main objective is to maximize yields. It is done through proper market timing for buying and selling.

‘Buy in low’ and ‘sell in high’ is the basic thrust of active investment strategy. This strategy is more useful for large and long term investors and less effective for small time and retail investors. Small investors can try ‘buy and hold strategy’. This investment strategy mainly invests on high volatile equities and holds for a long term till the value appreciates. This investment strategy proves to be profitable in the long run.