It goes without saying that traditional savings accounts aren’t enough to grow your money. As a type of investment, savings accounts are one of the safest places to put your money. The funds are liquid, so you can withdraw whenever and without penalties. However, these accounts are low-yield — typically, you'll only earn between one and two percent interest each year. Plus, you won’t benefit from tax cuts because your income will already be taxed, and you’ll have to pay tax on all interest earned. As an alternative to low-yield savings accounts, there are many other ways to invest your money, some of which are better than others.
Types of Investment Strategies
You may not realize it, but there are many ways to invest your hard-earned money. The different types of investment strategies include:
- Cash and Commodities – savings accounts, interest-bearing checking accounts, money market accounts, certificates of deposits (CD), gold, cryptocurrencies
- Bonds and Securities – U.S. savings bonds, U.S. corporate bonds, mortgage-backed securities
- Investment Funds – mutual funds, index funds, public provident funds (PPF), exchange-traded funds (ETF), 529 college savings plans
- Stock Markets – individual stocks, stock market indexes, stock options
- Retirement Plans – 401(k) plans, traditional IRAs, Roth IRAs
- Real Estate – property, real estate investment trusts (RIET)
- Insurance Plans – whole life insurance
These investment tools vary widely in terms of potential returns, costs, and risks. There’s no one-size-fits-all, so what works for one person or situation may not work for another. That’s why it’s vital to choose your investment strategy wisely.
3 Investment Strategies to Consider
Many people first look at stock investment strategies, but various ways exist to create a diversified portfolio. The approach to take with your money depends on a number of factors. Regardless, the goal is to choose the best investment strategies that help you meet your financial goals by maximizing returns and minimizing risks. This could be accomplished through value investing, growth investing, or income investing.
1. Value Investing
Value investing is like shopping for bargains at your favorite store. Many companies have share prices that don’t reflect their growth. Eventually, the share price catches up with company growth. Although these companies don’t focus on rapid growth and expansion, many pay dividends. Compared to some other strategies, value investing is a lower-risk option with fewer associated costs.
2. Growth Investing
You can take growth investing by seeking out companies that are expected to grow faster than others. This growth is based on revenues, cash flows, and profits. Companies that fit this investment strategy prioritize development and reinvest their earnings by acquiring new employees, equipment, and businesses. Growth stocks have a higher risk and are more expensive. They may be more suited for risk-tolerant, long-term investors.
3. Income Investing
Income investing is a strategy where you purchase investments that produce cash payouts. These payouts may be in the form of dividends or bonds and are in addition to regular returns. You can either keep the cash or reinvest. Dividend and bond payouts can be found in individual dividend stocks, index funds, and EFTs. Income investments are often a good choice for those looking to grow their fixed income.
Investment Strategy Examples
If you’re unsure where to start or level up investing, here are some examples that may give you ideas to think about. You have many options and can choose investment approaches based on your interests, age, values, and other factors.
- Business Investment Strategies. Some people prefer to invest in companies that closely match their morals, values, and beliefs. ESG investment strategies do just that. ESG stands for “environmental” (e.g., carbon emissions, green energy), “social” (human rights, data security), and “governance” (lobbying, executive pay). These types of investment strategies vary widely and include: socially responsible investing, best-in-class selection, ESG integration, active ownership or corporate engagement, thematic investing, and impact investing. Once you evaluate each method, you can determine which best fits your goals.
- Investment Strategies by Age. You can approach investing by taking into account your current age. How someone in their 20s invests won’t be the same as someone in their 60s nearing retirement age. Over time, your financial situation and objectives change. Also, as you get older, you have less time to take advantage of compound interest. That’s why finance professionals always say to invest as early as possible. If you need to save for retirement, it’s hard to catch up if you wait too long. Consider the different ways to invest by age, including how to retire early.
- Alternative Investment Strategies. Alternative investment strategies mean different things to different people you ask. In general, alternative strategies are anything other than traditional asset classes (i.e., cash, stocks, bonds, investment funds). This leaves an ever-evolving range of investments, including hedge funds, private equity, cryptocurrency, artwork, commodities, real estate, and many others. Some of these approaches may have higher risks and costs associated with them. Before taking the leap, be sure to carefully consider how to add alternative strategies to your portfolio.
Start investing early, have a financial plan, diversify your portfolio, and don’t try to time the market. Set it up and forget it — rebalance only when necessary. There are many reasons why you shouldn't do your own investing. Getting advice from a financial adviser who can guide you from planning to managing your investments is best.
Whether you’re young or old, a beginner or experienced, conservative or aggressive, there are many options for investing. That's why we recommend reviewing your options with a professional and considering how each strategy can help you achieve your goals. Business investment strategies, investment strategies by age, and alternative investment strategies are a few investment strategy examples that might fit your goals. One thing to note: taking a do-it-yourself (DIY) approach isn't recommended when it comes to investing. An advisor can help implement or manage these investment strategies. Either way, a good rule of thumb is to keep it simple.
At Plancorp, we have a Wealth Management team of financial advisors, planners, and consultants with first-hand knowledge in a variety of investing strategies. If you’re looking for a better investment experience, contact us today! Not sure where to start? Check out our financial analysis to receive customized content recommendations based on your goals.