Candlestick Trading Blog
June 3, 2008
Investment Strategy
When studying finance and trading and investing you will come across the term referred to as “investment strategy.” An investment strategy is a set of rules or procedures that are designed to guide an investor through the creation of an investment portfolio. When creating a portfolio the first thing an investor should do is determine his or her risk tolerance. This will help the investor determine whether or not he or she is more interested in passive strategies such as mutual fund investing, or more aggressive strategies such as day trading stock online. This article will focus more on passive strategies such as mutual funds, and index funds, as well as the “buy and hold” concept. Investing in mutual funds allows an investment company to spread its money across a diversified portfolio of securities, such as stocks and bonds, or money market instruments. There are many advantages to investing in mutual funds and many investors make a common practice to incorporate these investments into their investment strategy. Mutual funds investors make money by receiving dividends and interest from their investments or by the rise in value of securities. Shareholders receive dividend interest and profits from the sale of the securities in the form of distributions and they are typically allowed to redeem their shares during any time for the closing market price of the fund on a particular day. Mutual funds are also known as open-end funds as well. An index fund is another investment strategy and it is known as a collective investment ploy that seeks to replicate the movements of an index of a specific financial market. It is also known as an index tracker and the tracking is achieved by attempting to hold all of the securities in the index, in the same proportions as the index. An index form is typically in the form of a mutual fund or an exchange traded fund. A very popular investment strategy is known as the “buy and hold” strategy. This concept works for long term investing and it is based on the concept that the equity markets give a good rate of return in the long run, in spite of periods of volatility or decline. Typically stocks are bought and then held for a long period of time, regardless of the market fluctuations therefore holding onto the idea that market timing does not work for small or average investors. This investing strategy is one that is backed by 50 years of historical data. Keep in mind, however, that they are referring to the smaller and/or average investor and not the professional and/or advanced investor. Deciding on an investment strategy is the first step towards investing your hard earned money. It is the most important step in that you must first decide your risk tolerance. Once you have decided your risk tolerance you can then decide if you will be an aggressive investor or a passive investor. Aggressive investors must be willing to take chances and are more inclined to partake in day trading or forex trading, while the more passive, reserved investor is more likely to stick with investing in bonds and/or mutual funds. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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