Investing can yield fruitful results, but there 's more to it than picking the right assets at the right time. Success requires a diversified approach to risk management and a disciplined mindset.

Remember, never invest more than you can afford to lose. Your investment can go down as well as up, and you could get back less than you invested. If you're unsure about how much or where to invest speak to a financial adviser for professional support.

What’s meant by an investment strategy?

Your financial portfolio is built up with different types of 'investment strategies', with the aim to spread your money across different areas. These are made up of stocks, exchange-traded funds (ETFs), bonds and more.

Deciding which routes to explore can depend on a combination of factors, such as

  • your attitude towards risk
  • your financial goals (long and short term)
  • the volume of money you’re able to invest

What are the different investment strategies?

These strategies can help spread out their investments, or diversify their portfolio, potentially allowing them to benefit from the ever changing markets and new upcoming companies. 

Check out these types of investment strategies, along with their benefits and risks.

All strategies have their advantages and disadvantages and you can lose your entire investment if things go wrong.

Growth investing

Growth investors aim to sniff out companies with bright financial performance and the potential to outperform their sector. 

  • Suitable for: Younger investors with time to ride out potential rollercoaster share price movements. 

There's no easy way to find the next unicorn company. However, these indicators provide valuable signals of whether a business may be a profitable investment:

  1. Earnings growth (past and potential): A company's growth in profits over time
  2. Return on equity: How efficiently a company generates profits based on capital invested.
  3. Profit margins: A company's ability to generate profits after deducting all costs.
  4. Price-to-earnings ratio: The ratio of a company's share price to the company's earning per share.
  5. Share price performance: How the stock price of a company changes over a period of time.
Pros Cons

Potential promising long- term opportunity for patient investors.

Volatile share prices can generate short-term profits. 

With profits reinvested, you shouldn't expect dividends.

Short-term success doesn't guarantee long-term profit.

Value investing

Digging up stock market bargains before the masses catch on can potentially generate solid returns, whether for emerging companies or household brands with battered share prices.

  • Suitable for: Early-stage investors with the patience and time to wait out a stock's value until it potentially reaches its true worth.
Pros Cons

It's less risky to buy into undervalued stocks, even if the share price doesn’t rise. However, if the company's potential is realised, the rewards can be significant.

 With low barriers to entry, it’s accessible to those with smaller budgets but greater patience.

If you don't have a solid financial background, this can be a tough mountain to conquer.

When the tide's going against you, it can be hard to remain optimistic in the face of uncertainty.

Momentum investing

With this trading strategy, you focus on keeping a watchful eye on price trends with precision timing, often driven by observing panic selling or fear of missing out.

Traders who use technical analysis to strike while the iron's hot can make lots of money within a short time frame, although this can easily backfire. Stock prices are a common asset for momentum investors, instead of a grouped asset such as an index which can spread their investment across 100 or more companies.

  • Suitable for: Risk-tolerant investors seeking short to medium-term returns. It’s especially useful if they’re experienced in market data analysis and disciplined enough to deal with volatile conditions.
Pros Cons

Short-term investors don't need to worry about the business' foundation. They just need to analyse price movements.

Investors can profit both in the short and long term, as there are multiple opportunities to balance losses.

It's a high-risk strategy requiring hawk-eyed observation and precision timing. It's easy to miss out by not taking advantage of trade opportunities.

You'll need technical analysis skills, a disciplined mindset and the capacity to convert losses into learning opportunities.

Buy and hold investing

This approach provides a haven for investors who realise long-term strategies without any intervention (passive) often perform better than strategies with hands-on (active) involvement.

  • Suitable for: Inexperienced investors who want a passive strategy, and don’t have the desire to research and follow the market.
Pros Cons

Needs very little prior knowledge or attention to investments.

Profits won't be eaten up by commissions and fees as trades are rare.

Money might be tied up for longer than expected. This makes it unsuitable for those who might need to access it.

Market crashes can easily wipe out gains, and even cause investors to reduce their profits before exiting trades.

Index investing

This low-cost, diversified, and hands-off approach invests in funds that track a specific index such as the S&P 500. This lists the 500 largest companies in the U.S.A and is considered as a benchmark for the American economy. With regular contributions, you can gradually increase your investments' value. The S&P 500 index has grown 10.7% per year on average over the past 30 years.

  • Suitable for: Risk-averse or early-stage investors willing to regularly invest in the long term, with no urgency to sell.
Pros Cons

Good for investors without any desire or time to research the market.

Fees are generally much cheaper than other forms of investment since there's very little management required.

You have little control over the investment or performance of your money, and you're powerless if the market collapses.

You'll have a long wait before you see any decent returns, as growth tends to be gradual.

Contrarian investing

Like value investing, this strategy goes against the grain to profit from inaccurate stock prices. This long-term strategy focuses on buying undervalued and selling overpriced. For example, as aviation stocks crashed during the pandemic, contrarian investors will have bought in at rock-bottom prices. 

  • Suitable for: Investors seeking a long-term strategy willing to go against the grain, and wait until the market recognises their investment's potential for profit.
Pros Cons

When the risk pays off, vast profits can be made, sometimes in very short periods.

Investing in assets you might not otherwise have is an effective way to reduce risk by balancing your portfolio. 

Relies on unpredictable market conditions to determine when to buy and sell.

Requires research, patience and analytical skills. Tracking down undervalued stocks and knowing the relevant signals to buy takes time and practice. 

Income investing

By seeking out investments that generate a regular income, this strategy can apply to people who want to boost their profits through ownership of equities (stocks and shares), government/corporate loans (bonds) or property. This strategy can be used to reduce the risk of market instability, potentially balancing out any movements that cause investments to reduce in value. 

  • Suitable for: Retirees or others who rely on passive income to cover living expenses.
Pros Cons

Can offer more stability than other strategies, as investments are often made to more stable assets such as government bonds, security-backed property or established corporations.

You may reinvest income to generate compound interest, which may outdo saving a lot in a short time. 

Locking your money into longer-term investments can mean you miss out on more profitable opportunities you might have chosen if the cash was available.

You can’t benefit from economic benefits that come with growth or value investing as your return’s fixed. Although this could be beneficial, it also blocks any opportunity for generating unexpected profits.

Asset allocation

As long as you know not to put all your eggs in one basket, asset allocation helps you decide how many eggs to place in different baskets. In other words, how to diversify your investment strategy across several asset types. 

Designed to reflect your evolving financial goals, it should factor in your risk tolerance, investment duration, and how often you review your investments.

You should conduct extensive research and understand what you're investing in to make wise investments. Aviva Financial Advice offer a range of services and solutions to meet all your investment needs - find out more about investment advice. Any recommendations advisers make will be for products from Aviva and other carefully selected partners.

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