Eight Popular Investment Strategies for 2024
There are so many different types of investment strategies out there that it can be hard to know where to start. Each investor will be suited to different investing strategies depending on their personality, investment goals and appetite for risk.
In this article, we will highlight and explain some of the most popular investment strategies currently available and also discuss what factors you should consider when choosing your own investing strategy.
Table of Contents
What Is an Investment Strategy?
Although the two terms are often, and incorrectly, used interchangeably, trading and investment are two different methods of operating in the financial markets. Investing is all about growing wealth over the long-term, whereas trading is about making profit over a shorter time period, and it is the former which we will be discussing in this article.
An investment strategy is a plan in which you establish the objectives of your investing and the manner in which these will be achieved. This plan will be based on the following parameters, which must be defined before beginning your investment journey:
- Your investing goals
- The time frame to achieve your goals
- The amount of capital you are willing to invest
- The financial product in which your investment will be made
- Your risk profile
Having your investment strategy clearly defined before you start investing will help manage your risk.
How to Create an Investment Strategy
In order to create an effective investment strategy, we must consider various factors and ask ourselves a number of questions:
- Objective
- What do you want to achieve with your investment strategy?
- Do you want to grow your capital over the long-term? Or are you looking to generate a regular income?
- Investor Profile
- Are you risk averse? Or are you happy to take risks in order to pursue bigger returns?
- One thing which is always important to bear in mind, regardless of your profile, is to never risk more than you can afford to lose
- Financial products
- Funds or stock markets? Exchange-Traded Funds (ETFs) or bonds?
- Type of Investment
- Active or passive?
- Do you want to constantly keep an eye on your investment and compensate your portfolio as the market changes?
- Or do you prefer to keep your capital in a product which will continually yield long-term income without constant reviewing?
Once you have been through these questions and you are clear on each one, you will be in a much better position to create your investment strategy.
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Popular Investment Strategies for 2024
As we mentioned at the start of the article, there are numerous investment strategies available to investors and you will need to choose an investing strategy which best suits your interests and goals.
In this section, we have compiled a list of some of the most popular investment strategies amongst investors today.
1) Fixed Income
The fixed income market consists of investment in bonds, treasury bills, bank deposits and so forth.
These products have a predetermined percentage of returns, which are paid periodically, and also tend to have a maturity date.
Advantages
- They are considered low risk
Disadvantages
- In return for their low risk, they offer reduced profitability
2) Dividend Investing Strategy
A dividend investing strategy is usually based on holding dividend stocks over the long-term, in order to collect income from their dividend payments.
Therefore, when analysing which company to invest in, amongst other things, it is important to consider what their dividend yield is. The dividend yield shows us the value of the previous year's dividend payment as a percentage of the current share price.
Source: DividendData - FTSE 100 highest dividend yields – 17 March 2022.
Advantages
- Using a dividend investing strategy means that you will receive regular income
- Maximise potential return by reinvesting dividends
Disadvantages
- Investing in dividend stocks tends to provide less potential for capital growth
- Any changes to a company’s dividend policy may have a negative effect on the value of your shareholding
3) Value Investing Strategy
A value investing strategy consists of identifying and buying shares which are undervalued in the stock market, an investment strategy which was popularised by legendary investor Warren Buffet.
Buffett's philosophy is not based on constantly buying and selling shares, but identifying the right shares, buying them and holding onto them. Furthermore, Buffet limits himself to acquiring shares in no more than eight or nine companies a year.
Another part of his philosophy is the understanding that companies which pay good dividends represent great opportunities to maximise the profitability of your investment.
Advantages
- You are a part-owner of the company, which means, among other things, you have voting rights
- If the company pays dividends, you will get a regular income as well as the possibility of capital increases.
Disadvantages
- You need to pay 100% of the investment
- The company could fail or go bankrupt
4) Dogs of the Dow
This is one of the easiest investment strategies to understand and follow. Popularised in 1992 by Michael B. O'Higgins in his book "Beating the Dow", this strategy involves selecting the stocks with the highest annual dividend yield from the Dow Jones Industrial Average (DJIA).
The Dogs of the Dow investment strategy follows these five steps:
- At the beginning of the year, identify the 10 DJIA shares with the highest dividend yields
- Divide your available capital in ten equal parts
- Each portion will be used to buy shares in each of the ten identified companies
- Keep this basket of shares until the end of the year
- At the end of the year, sell the shares and repeat the process
This strategy has proven to be very effective in the past, but with a few exceptions. For example, in 2016, the Dogs of the Dow achieved a return of 20.8% compared to 16.5% for the DJIA.
In 2017, however, the Dogs of the Dow underperformed the index, gaining 23.7% compared to the wider DJIA’s 28.1%.
Below you can see the list of the Dogs of the Dow for 2023:
Source: Dogsofthedow.com – Dividend Yields’ as of 30 December 2022.
Advantages
- It does not require much knowledge of the market
- It only requires action at the beginning of each year
Disadvantages
- As with any investment, there is a risk of the market moving against you
This can be a good investment strategy for beginners to start their journey in the stock market, as it is easy to understand. However, when you look at the share prices of each stock in the table above, you may find yourself put off by the amount of start-up capital required.
Fortunately, with fractional share investing, customers of Admirals can purchase shares in some of the world’s most popular companies, including all the constituents of the DJIA, for a fraction of the price! Click the banner below to find out more:
5) Dollar Cost Averaging Strategy
The Dollar Cost Averaging strategy is another suitable investment strategy for beginners. It involves investing a fixed amount of money regularly, usually into stocks or bonds. Normally, this investment takes place every month, always with the same amount of money, regardless of how the markets are behaving.
The Dollar Cost Averaging strategy relies on the fact that the stock market tends to rise over the long-term, even if it is subject to ups and downs in the shorter term. Dollar Cost Averaging avoids the timing risk involved in those short term price fluctuations.
By investing the same amount each month, you simply buy more shares for your money when the price dips, lowering the overall average cost of your shares, and vice versa. This is why it is important to be consistent and not to give up after a few months if you do not get a return.
Although the Dollar Cost Averaging strategy is typically practiced with stocks or bonds, it can become much more effective if we use it with ETFs. ETFs are publicly listed funds which are designed to track an underlying asset, sector or economy by using investors’ money to purchase a basket of securities.
Therefore, using this investing strategy with ETFs ensures that your portfolio is diversified, and you do not find yourself relying on a single type of stock rising in the future, because it may not.
Advantages
- Your emotions are left out of the strategy
- You do not require a large amount of start-up capital
Disadvantages
- Requires consistency and confidence in the plan
6) Growth Investing Strategy
A growth investing strategy involves purchasing shares in companies with rapid growth potential, such as technology start-ups. These companies are usually overvalued in relation to their book value, making this strategy the opposite to the value investing strategy we looked at earlier.
To know if a company is overvalued, we must look at the company's Price to Earnings Ratio (P/E ratio), which demonstrates the ratio of the company's share price to the company's Earnings per Share (EPS). The higher the P/E ratio, the more overvalued the stock is and vice versa.
Advantage
- If it works, this strategy can offer high returns
Disadvantage
- The risk of growth investing is higher than the previous investment strategies we have covered. This is because the company in question could not meet its high expectations and fall in the stock market.
7) Momentum Investing Strategy
The momentum investing strategy is one of the most popular investment strategies on our list. It consists of investing in assets which are already on a consistent upward trend and taking advantage of the existing momentum.
It requires constant review in order to be able to act in case the upward trend is interrupted. In this strategy, you must pay close attention to the technical analysis, as opposed to fundamentals. If this strategy is used with stocks, it is recommended to diversify your portfolio so as to not put all your eggs in one basket.
In reality, a momentum investing strategy is more reminiscent of trading than investing, as the investor may have to open and close trades in shorter periods of time compared to traditional investment strategies.
Advantage
- If the movement is prolonged over time, it offers the possibility of high returns.
Disadvantages
- Constant attention is required
- Stress and emotions can easily lead to mistakes
8) Green Investing Strategy
A green investing strategy is focused on companies that promote clean energy resources and environmentally responsible practices.
We can talk about two general types of green investments:
- Direct green investments. These are investments where profits are obtained directly from companies devoted to environmentally friendly activities.
- Indirect green investments. The capital that the trader invests is directed to companies whose main business is not devoted to sustainable practices, but which has a product line, or a project, directed to green activities.
A green investing strategy can be made either by buying shares in companies or through specialised green ETFs.
Advantages
- It is a sector with great growth potential
- Green investing contributes towards the future well-being of our planet
Disadvantages
- Requires thorough analysis of assets
- It is highly focused and should be diversified with other investments
Final Thoughts
In this article, we have highlighted eight popular investment strategies for beginners and experienced investors alike. Remember, investing is all about making profit over the long-term and, therefore, no investment strategy is going to make you rich overnight.
One thing which most successful investors, and traders for that matter, have in common is practice, something which customers of Admirals can do for free on a risk-free demo trading account.
Investing Strategies FAQ
Why Is Investing Important?
Over time, inflation erodes the purchasing power of money, meaning that - unless interest rates are higher than inflation, which they currently are not – money sat in the bank is slowly losing its value. Investing provides an opportunity to beat inflation and, hopefully, grow your wealth over the long-term.
How Old Do You Have to Be to Start Investing?
In the UK, you can start investing independently in the stock market as soon as you turn 18. One of the biggest investment mistakes people make is thinking that investing is only for older people and starting too late, or not starting at all. But with today’s technology, investing has never been more accessible than it is right now.
The earlier you start investing, the more you will potentially benefit from its compounding effect over the long-term.
What Are Alternative Investment Strategies?
Alternative investment strategies involve investing in assets which do not fall into the traditional and conventional asset classes: stocks, bonds and cash.
Examples of alternative investments include commodities, property and hedge funds.
What Is Impact Investing Strategy?
An impact investing strategy aims to generate, not just financial returns for the investor, but also positive benefits to society or the environment.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
