There is a wide range of investment options that you can choose from when it comes to the stock market. They all have their own levels of risk and the more profit you’re after, the riskier it often gets. That is why it is very important to understand the different types of investment strategies before you put your hard earned money in the market.
Growth investing
Investing in stocks that show promise of doing well but haven’t established themselves in the market yet is largely what growth investment is all about. The investment amount should not be too high as these companies are yet to show results. They are typically companies that have brilliant ideas for capturing market share or revolutionizing an industry. The only obstacle they would be facing is a lack of operating capital. However, they often turn over phenomenal profits and sustained growth over time. For example, the Google stock has seen huge growth since its initial public offering in 2004.
Value investing
In value investing, the key is to identify which stocks are undervalued. This should not be confused with underperforming companies. For some reason or the other, the market may have overlooked a potentially profitable stock. You can cash in on this by assessing which stocks are worth more than their present market value. Study the price versus earnings ratio to understand what the true value of the stock stands at. In time, the market will reassess that stock and recognize its real value.
Income investing
This is by far the most conservative investment strategy where investors put their money into companies that have proven and stable earnings over a long period of time. These companies also pay high dividends, a reason that makes them very popular with risk averse investors. While all investments carry a certain degree of risk, income investing tries to minimize that risk and is likely to give more reliable returns. Microsoft and Wal-Mart are two examples of well-established companies that offer secure investment and sustained profitability to their investors over the years.
When you choose an investment strategy, you should also consider your age. If you’re nearing retirement, go for income investing, as it will give you good returns even if the economy is bad. If you’re young, you can go for riskier investing like growth or value stocks. In either case, you should carry out a thorough analysis of the prevailing market conditions and the stock that you’re targeting before you make your decision.
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