People all over the world trade in the stock market a number of different ways. To me, there are five that stand out and one that I follow personally.
Here the five powerful investing strategies, each with their own risks and rewards:
This type of investing revolves around the idea of buying securities, bonds, and dividend paying companies to generate a steady flow of income. This isn’t the worst idea in the world but it does have its drawbacks.
Yes, income investing can generate a decent rate of return relatively safely. However, in order to be able to rely on this type of investing solely, you would need a ton of money to work with.
Unfortunately, for most people this isn’t the most viable option and most of us probably don’t have that kind of cash to play with anyway.
I will say, this is the most undesirable option in my opinion. The idea here is to buy companies specifically for their impact on the world.
As good as that sounds, and I am sure most people want to make a positive impact on the world, this type of investing can be very risky.
These companies are usually grossly overvalued and they don’t typically have the fundamentals to stand on in order to be a long-term viable company.
Also, since this type of investing is so risky, it’s better to be rich enough to have the money to lose as opposed to potentially losing everything if you are a small investor.
Here, we want to look at companies with above-average growth. These could be giant tech companies or others that have the means for greater growth rates than their competition.
These companies can provide a decent rate of return in a strong and steady economy. However, they tend to be at more risk in a recession or the down market.
Since these types of companies are operating with lower market caps, they tend to be on the new side of the market.
They offer an opportunity for faster and higher rates of return when compared to most large-cap stocks.
However, they tend to be much riskier and can be largely influenced by big investors, meaning they can be very volatile.
This is the strategy that I personally follow and I believe is the best type of investing. The goal here is to buy companies that are on sale far below their true value. Essentially, you want to be able to get that company for half off.
When done correctly value investing can actually incorporate the previous four investing strategies, giving you a higher chance of success.
Although value investing does require the proper knowledge to do correctly, it can generate the highest rates of return with the lowest amount of risk.