The stock market provides the promise of great wealth for the right investor, but many people struggle to wrap their minds around the inherent unpredictability associated with the market.
Recently, the Economist reported that young investors in particular stand to make a “dismal return on their investments,” a statement that doesn’t inspire confidence in new economic opportunities.
As a controller, you may be called upon to help navigate these uncertainties, providing advice for individual or corporate investment planning. To give you a headstart, we’ve summarized the top 5 investment strategies that you can use in 2021.
1. Plan for the Long-Term
It’s tempting to think of the stock market as an exciting world of rapid trades, where gobs of cash can be won—or lost—in a matter of minutes.
While day traders may experience some of these highs and lows, most investors are better off playing the long game. One of the best investment strategies you can use today is to invest in a stock portfolio and plan for slow, steady growth over time.
This doesn’t mean there isn’t value in adding stocks that you anticipate growing in the near future. But the core of your investment portfolio should include stocks that have a reliable track record of growth, bringing you reliable, manageable wealth in the future.
Likewise, this also highlights the need for investors to adopt the habit of monitoring their stock performance long-term, making any necessary adjustments to maximize the value of their portfolio and jettison underperforming stocks.
2. Diversify Your Portfolio
Secondly, investors should make diversification a top priority. What is a diverse portfolio? Investment diversification simply means that you don’t put all of your eggs in one basket, but instead, invest in multiple companies. Doing this can mitigate risk as the success of your other investments will likely protect you if one of your stock picks should suddenly plummet.
What should your target be for proper diversity? There’s no real “right” answer to this question, but many financial experts recommend aiming for 20 to 30 different stocks as one of your core investment strategies.
This also means that you should try to invest in companies from a range of industries and sectors. For example, investing in 15 tech companies is actually less diverse than investing in 10 companies from multiple areas. If one industry should experience a downturn, your entire portfolio remains resilient.
Thankfully, certain funds (like mutual funds) will already contain a variety of stocks to get you started.
3. Invest with Your Values
Investors are increasingly putting their money where their values are, so to speak. ESG stocks represent companies that have committed to specific environmental social governance (ESG) criteria, which ensures that the company is committed to ethical and environmentally sound business practices.
This isn’t necessarily the most lucrative of investment strategies, but investors may appreciate their ability to support companies whose values and passions match their own.
In an age of hypocrisy and scandal, the ability to invest ethically may encourage reluctant investors to make a financial commitment.
4. Choose Between Top-Down and Bottom-Up Investing
Technically, these are two different investment strategies, but they represent two sides of the same coin. Top-down investing refers to the practice of choosing assets based on a common theme.
Most broadly, an investor might buy stocks across the board, anticipating that the economy will rise and he can reap the rewards across a variety of sectors.
Top-down investing can also be applied to particular sectors or industries. Investors who expect to see growth in the healthcare sector can select stocks from that industry and invest accordingly.
Conversely, bottom-up investing refers to investing in an individual company, regardless of what’s happening in the market as a whole — or even the individual sector of which that stock is a part.
There’s always risk in investing in individual stocks, but this method can always be used to add stocks to an existing, properly diversified investment portfolio.
5. Use Dividends to Generate Passive Income
Those who are looking for investment strategies that provide passive income might consider stocks that offer dividends.
What are stock dividends? Companies can often take a portion of their profits and redistribute this money to their shareholders, almost as a kind of bonus. The amount you receive from dividends will reflect the number of shares you own in the company.
These dividends are usually small compared to the price of the stock as a whole, but some investors like the option of receiving additional income without having to lift a finger.
Some companies offer Dividend Reinvestment Programs (DRIPs) that allow investors to take the money received in dividends and purchase additional shares in the company.
The Value of Investing
These investment strategies form a valuable starting point for new investors, providing a trajectory for future growth and success. Controllers can use these tips for their own investments, as well as to provide valued guidance and advice to clients.
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