Money makes our world spin around. Everyone wants to be financially independent and looks for all the possible ways to earn more. While some prefer hard-earned cash as the only way to make wealth, investments are a much better and more profitable method of making your money work. The benefits of investments are hard to underestimate as they help to keep up with inflation, provide a decent level of living, and, what’s more, help to build a retirement nest.
Financial success never comes out of nowhere, and long-term investments require deep knowledge and awareness of market trends and strategies to use. The initial period will be full of research and reading, which will make a fundamental layer for future performance. It’s also highly recommended to consider the golden rules of investment, just to be on the safe side.
- Start investment only if you have a financial safety net - it is not worth using a ‘win-it or lose-it’ approach. Be mindful and considerate.
- Define your investment expectations and goals - be realistic and count all the potential risks.
- Devise your investment - take time to learn and plan, and don’t rush into decisions.
- Plan a few options, don’t risk it all for just one enterprise - it is always better to have a backup plan, as our world is full of unexpected situations.
- Anticipate long-term changes - follow and analyze the performance of the company, its style, and market behavior as it will help you to be on the safe side.
When studying investment strategies, it is important to consider the long- and short-term financial goals, risk tolerance, and market fluctuations. Among the most common investment options are: value investing, growth investing, income investing, socially-responsible investing, and small-cap investing.
1. Value Investing
The core of this strategy is the intrinsic value of the company. Investors are studying the market and picking companies with underestimated value. After buying the stocks, they need to wait for a year or more till the price of the shares rises and just sell the shares with substantial financial gains. Value investment takes time, patience, and a deep understanding of the market. When intending to take part in value investing, it’s vital to study and analyze the performance of the company and evaluate its potential.
2. Growth Investing
Unlike value investing, where the investors think that the company is underestimated by the market and will perform better in the future, growth investing is about real numbers that prove higher significant earnings. Those who are willing to use this strategy are scanning the market for companies that show better-than-average performance and are showing potential for further growth.
Typically, the companies chosen for such investments are ahead of their time, using innovative technologies and ideas, therefore, showing signs of long-term prosperity. The stocks are traded at a P/E ratio (price-earnings).
3. Income Investing
This strategy is focused on regular payments and is related to stocks, real estate investment trusts, mutual funds, bonds, exchange-traded funds, etc. The form of income can vary - dividends, bond yields, and interest payments. Income investing is one of the most suitable options to use at any stage of life.
4. Socially-Responsible Investing
Socially-responsible investment, or SRI, is a conscious choice of socially-aware companies that make steps towards improvement of our world regarding environmental sustainability, alternative sources of energy, nature-saving technologies, tolerance, etc. With that in mind, SRI avoids any type of companies engaged in a negative societal footprint - tobacco and alcohol, addictive substances, despite their profitability and high return on investment.
It is important to understand that socially-responsible investing doesn’t focus on making high profits, it is rather an opportunity to participate in world improvement locally or globally, standing out for socially-conscious choices and principles.
5. Small-cap investing
This kind of investment focuses its attention on companies with a small market capitalisation (up to two billion dollars). Small-cap investment is a risky venture as small companies are more sensitive to market fluctuations, and they have even chances for failure and growth. However, it can also be a highly profitable deal, as all the large-cap companies started from being small and unnoticeable businesses.
Small-cap investment requires proper observation. Typically, such companies fill up the niche or create a new niche of business, they are different and unconventional. If the choice is right, such an investment holds the potential to exceed all the financial expectations, and the cost of shares is significantly lower than large-caps.
Making an investment is one of the best ways to make your money work for you. Before embarking on this profitable, yet rather challenging venture, it is worth considering all the strategies to use and learning all the ins and outs of the financial market. Successful investment is your key to financial safety and independence.