Home>Specials>Business>The Best Investment Strategies (for Beginners) 2022
Business

The Best Investment Strategies (for Beginners) 2022

Finding the right strategy as an investor takes time and a lot of patience, knowledge, and skill to master. To have a fully refined method for investing, traders or investors spend a lot of time analyzing and carefully timing the market.

The best investing strategies are those that have maximized returns, with minimal risk. However, before one dips his or her toes in investing, it’s a good idea to seek professional financial advice first! Some rely on experts, but that usually comes with a high fee. Others like to scour the internet for free materials on investing just like the articles we can read on the Empire27 forum.

Here’s another one for you today! Let’s find out which investment strategy is properly-suited for you by reading all about the best investment strategies for beginners.

Disclaimer: This article is for entertainment and educational purposes only. The author’s views and opinions should not be taken as financial advice.

Best Investment Strategies for Beginners

Investment Strategies are a set of rules and procedures specifically to guide an investor whether he or she decides to buy or sell a certain stock. Here are the 3 main strategies that are suited for beginner investors.

  • Active Investing
  • Passive Investing
  • Dollar-Cost Averaging

Passive Investing or “Buy and Hold”

The idea behind passive investing or the buy and hold strategy is that no matter what time or price of your entry into the market, the long-term returns should overcome the short-term volatility of the market. Holders would argue that holding for increasingly long periods will result in less time spending hours looking at the market or spending on trading fees.

Active Investing or “Day Trading”

Active Investing or day trading requires skill and knowledge in the technical analysis of a stock or currency. Oftentimes it involves entering and exiting a trade position within a day for small profits to have accumulated gains. Traders or active investors prefer to find opportunities in market fluctuations. Forex traders for example use technical analysis and market data such as price trends to anticipate future market prices.

Dollar-Cost Averaging

Dollar-cost averaging or simply called DCA is the method of investing where one makes regular investments in the market over time rather than buying a certain stock or commodity at once at an individual price. You are averaging your entry into the market by investing a little amount every month, thus reducing your risk substantially from big moves in the market.

What to do next?

So you’ve narrowed it down to a strategy that you are comfortable with. Great! However, there are still a few more things you’ll need to do before making that first investment.

  • Know the risk before the reward
  • Diversify
  • Watch for volatility
  • Trade with momentum
  • Take your profits

Know the risk before the reward

Before you can calculate how much profit you want to make, it’s more important first to determine how much you are putting at stake. This shift of mindset is crucial for deciding whether or not you would like to invest or not. Think to yourself, how much risk am I taking by making this trade? If you come to a certain amount, ask yourself again, if we make a bad investment, is it an amount you are willing to lose? Are you comfortable with the risk to reward ratio? The general rule in investing is to never invest more than what you can afford to lose – or else you might risk becoming broke by losing all your capital. The trick is also to learn how to preserve your capital as much as possible by limiting your exposure as well. Don’t overtrade. Others opt for a conservative risk profile. Some prefer moderate, or even aggressive approaches. The higher the risk, the higher reward. Low risk will also have a lower return.

Diversify

The most basic risk management strategy to start is diversification. If you heard of the saying, “don’t put all your eggs in one basket” before, this is what it means. A diversified account limits exposure to a single risk. In theory, if your portfolio contains a mix of different investments, you are spreading (diversifying) the risks rather than putting it all on the line on a single investment or asset.

Watch for volatility

Volatility is a good indicator of whether or not we should invest, or participate in a trade. Volatility measures how much a financial asset moves over time. For example, the cryptocurrency market is highly volatile because it experiences extreme price fluctuations in a short time. By tracking the volatility of a certain security, investors can profit by understanding these changes by applying technical analysis and strategies before entering a trade.

Trade with momentum

Trade with the momentum of the market. Momentum refers to the rate of change in an asset’s price in a given time frame. It is formulated by how much volume there is of buying and selling. When the price is moving in an uptrend, there is a positive indication of momentum. On the contrary, when the price is moving in a downtrend, the momentum indicators will produce a negative signal. As a rule of thumb, always trade with the trend, and never against it. Popular momentum indicators include volume, moving averages, and stochastics.

Take your profits

The last and most important reminder is to take your profits. Don’t just hold your assets without any exit strategy. Create a goal and strategize what is the best time to exit the market. As you recall earlier when we discussed risk and reward, the longer you stay in the market, the more you are risking yourself to exposure. Remember you invested because you want a return of income. If the return of income is already substantial, it’s better to secure your profits rather than to be greedy. You know what they say, profit is profit no matter how small or big.

New year, new challenges

Remember that whatever you choose to invest in will all depend on your risk tolerance, financial goals, and the amount you can afford to put in. Investing and navigating through the financial markets can be tough at first and it sure intimidates a lot of people due to its complexity. In time you will surely get a hang of it. The first step is always just the courage to try.

Journal Online
A collection of noteworthy information on various topics from the Philippines and the rest of the world.
https://journal.com.ph