60 years back, only one investing advice broker was giving to their client “buy when the market is going up and sell when it is going down”. It’s a ridiculous investing style to invest your money. However, now there are some effective investing styles to invest your money–invented by smart people.
These investing styles are most effective when you invest for the long term and invest as soon as possible.
“The dumbest reason in the world to buy a stock is because it’s going up”. -Warren buffet
6 best investing styles
1. Buy and Hold
It is an investing style in which people buy a diversified portfolio mix of stocks, exchange-traded funds, or mutual funds, reinvest the dividend by buying back more shares, and hold those investments indefinitely.
Buy and hold investors don’t need to worry about short-term fluctuation of the market. Because they know in long term market always go up, if they hold profitable company. They only buy a share of the company when the market or company shares are down.
Don’t be an unwise investor after buying instead review the portfolio at least annually to check if they are still good investments.
2. Value Investing
Buying undervalued shares of a profitable company to their financial report is called value investing. It’s the Favourite strategy of warren buffet, mine either.
Value investors don’t look at the daily chart or prices of the company instead they concentrate on analyzing the company and finding its intrinsic value. Fundamental analysis takes a huge role in value investing.
3. Dollar-Cost Averaging
Investing equal sums of money at systematic intervals regardless of the price of the stock, it’s called dollar-cost averaging. in this approach, the same amount of money you must invest in the same stock or mutual fund at regular intervals.
When the price is low buy more shares and on high buy a few shares, thereby you will buy shares at below average. It has two benefits; it states your discipline, and it reduces the average cost of a share of stock bought over a long period.
4. Asset Allocation
Asset allocation is a form of diversification in which you decide what proportion of assets to devout in a portfolio. Its main benefit is when one asset is going down, the other one will go up.
Which asset to include in your portfolio is based on your risk tolerance and time to keep your money invested. You must reset your asset allocation at least once a year.
5. Growth Investing
It is one of the favorite styles of investing for an investor who wants to make a profit in stocks. Growth investors invest in small enterprises whose profits are growing exponentially. These enterprises seldom turn into baggers. Also, it carries a high risk.
Typically, they don’t pay a dividend to shareholders instead they use the money to increase earnings in the future. Growth investors often look at historical cost, stock performance, profit margin, and return on equity.
6. Dividend Investing
A dividend is companies profit attributable to shareholders. Large companies often pay a dividend because of two reasons they don’t see profitable opportunities to use their money and to keep investors.
A dividend-paying company has 4 benefits; they provide steady passive income by paying a dividend in regular intervals, you also earn money by stock price appreciation, the longer you invest the more your money will grow by compounding and maximizing return with dividend reinvestment.
Choose the best investing styles based on your risk tolerance and time horizon. You can also use a mixer of investing styles to your investment, such as buy and hold style with asset allocation, dollar-cost averaging with growth investing, and so on.