An investor’s plan of attack to guide their investment decisions based on individual goals, risk tolerance and future needs for capital. The components of most investment strategies include asset allocation, buy and sell guidelines, and risk guidelines.
Investment strategies can differ greatly from a rapid growth strategy where an investor focuses on capital appreciation to a safety strategy where the focus is on wealth protection. The most important part of an investment strategy is that it aligns with the individual’s goals and is closely followed by the investor.
A method of portfolio management and asset allocation that attempts to achieve maximum return. An aggressive investment strategy attempts to grow an investment at an above-average rate compared to its industry or the overall market, but usually take on additional risk. Because their aim is capital growth, aggressive investors place a higher percentage of their assets in equities rather than in safer debt securities. As such, aggressive investors build portfolios that bear a fairly high amount of risk. But before assuming this strategy, an investor should evaluate his or risk tolerance – making sure it’s high – and be sure that he or she has quite a few years before needing the invested funds.
A method of portfolio allocation and management aimed at minimizing the risk of losing principal. Defensive investors place a high percentage of their investable assets in bonds, cash equivalents, and stocks that are less volatile than average. A defensive strategy typically means a low risk/low return investment portfolio.
A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.Although the balanced investment strategy aims to balance risk and return it does carry more risk than those strategies aiming at capital preservation or current income. In other words, the balanced investment strategy is a somewhat aggressive strategy, and is suitable for those investors with a longer time horizon (generally over five years), and have some risk tolerance.