Meme stocks. Cryptocurrency. Real estate investment trusts. There's no shortage of investment options available today. And with so many options, deciding how to invest your money can be overwhelming, to the point where many people end up not investing at all. In fact, just 41% of adults between the ages of 18 and 29 own stocks; the rest skip investing altogether.
By learning about popular investment strategies, you can feel more empowered about managing your money and planning for the future. Whether you opt for dollar-cost averaging with blue chip stocks or stick to index funds, these nine investment strategies could help you to invest with confidence.
Part of investing is dealing with market changes; the prices of stocks can ebb and flow, sometimes dramatically. Dollar-cost averaging is an investment strategy that helps minimize market volatility by investing small amounts of cash into stocks or other securities at regular intervals. For example, you might invest $20 in a particular stock or exchange-traded fund (ETF) every Friday.
Over time, dollar-cost averaging can help smooth out the effects of market volatility, allowing you to build a position in a security without worrying about timing the market.
With active investing, you take a more hands-on approach to investing, frequently buying and selling stocks in an attempt to beat the market. Active investors believe that they can achieve investment returns that exceed the market average by analyzing companies and making investment decisions based on their findings.
Active investing requires ongoing research and monitoring of your investments. If you want to do it on your own, expect to spend a significant amount of time managing your portfolio. Alternatively, you can invest in an actively-managed mutual fund that is professionally managed by a team of investment experts.
If you don’t have the time or expertise required for active investing — and few people do! — passive investing may be a good choice. Instead of trying to beat the market, passive investors aim to mimic the performance of major market benchmarks, such as the S&P 500.
The biggest advantage of passive investing is that it’s simple and doesn’t require any work on your part. Once you invest your money, you can sit back and let the market do the work, monitoring every so often. Plus, passive investment funds tend to be less expensive with lower fees than actively-managed funds.
If you are a determined bargain hunter, value investing may be the investment strategy for you. Value investors look for stocks that they believe are trading below their intrinsic value. In other words, they try to find stocks that are “on sale” in the market.
To find these undervalued stocks, value investors conduct extensive research on individual companies, analyzing financial statements and monitoring economic indicators. Or they may invest in ETFs with portfolios made up of hundreds of value stocks.
Value investors tend to have longer investment horizons, as it can take time for a stock’s price to reflect its true value, so it may be best for people with long-term investment goals.
While value investing is focused on finding stocks that are trading below their value, growth investing is all about finding companies with strong prospects for future price appreciation. These companies may be experiencing rapid revenue growth or have other positive attributes, such as a new product in development.
You can find growth stocks on your own, or you can invest in ETFs and mutual funds and get exposure to a basket of growth companies.
Growth investors look for stocks with the potential to generate higher returns. But since these stocks tend to be more expensive than value stocks, growth investing is best for investors with a higher risk tolerance.
Many of the investment strategies discussed so far — such as dollar-cost averaging and value investing — may be best suited for investors with long-term goals. But if you need to use the money in the account within the next one to five years, those investment strategies may not be appropriate for you.
Short-term investing tends to be conservative. Rather than investing in stocks, short-term investors choose investments that are less risky, such as a mix of bonds, certificates of deposit (CDs), high-yield savings accounts and money market accounts. The returns are often lower than you’d get with the stock market, but there is less risk.
[Important: Short-term investing is very different from day trading, an investment strategy that involves rapidly buying and selling stocks, often within the same day or even within a few hours. Day trading is highly speculative, and incredibly risky.]
Long-term investing, also known as the buy-and-hold approach, is a passive investment strategy. The goal is to buy stocks or other securities and hold onto them for years — or even decades.
The thinking behind this investment strategy is that over time, the stock market will go up, and your investments will grow along with it. Of course, there will be ups and downs along the way, and while we cannot predict the future based on the past, the market has always trended upward.
One of the biggest advantages of long-term investing is that it’s simple and doesn’t require much work on your part. You can set up your investment account, make your initial investment and may even set up recurring investments for the long term.
Income investing is a strategy that focuses on generating regular income from your investment accounts. The goal is to find investments that will pay you dividends, bond yields or interest so that you can receive a steady stream of income.
While you’re younger, your investments will likely be focused on growth. But as you near your target retirement age, shifting to a portfolio focused on producing income can be a smart idea. And income investing can be a good strategy if you need to supplement your retirement savings and Social Security payments once you retire.
There is no shortage of companies that have experienced significant returns. But for every success story, there’s a cautionary tale about a company that didn’t live up to the hype. If you put all of your money into one stock or a handful of companies that didn't perform as expected, you could lose a significant amount of money.
To lower the risk of investing in the stock market, experts recommend creating a diversified portfolio. A diversified portfolio may include a range of industries and markets and may contain multiple types of investments, such as stocks and bonds.
You can create a diversified portfolio on your own, but it’s often easier to do it by investing in ETFs. Some ETFs allow you to invest in hundreds of companies at once, so if one company performs poorly, the other companies can offset those losses.
With Acorns Invest, a robo-advisor will recommend a diversified portfolio of ETFs for you, and you can invest with just your spare change. You can get started in just a few minutes by creating an account online.
Investing involves risk including the loss of principal. Diversification and asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principle. Please consider your objectives, risk tolerance, and Acorns’ fees before investing. Investment advisory services offered by Acorns Advisers, LLC (“Acorns”), an SEC-registered investment advisor. Brokerage services are provided to clients of Acorns by Acorns Securities, LLC, an SEC-registered broker-dealer and member FINRA/SIPC.
This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.