What’s An Investment Strategy
An investment strategy is a way of thinking that shapes how you select the investments in your portfolio. The best strategies should help you meet your financial goals and grow your wealth while maintaining a level of risk that lets you sleep at night. The strategy you choose may influence everything from what types of assets you have to how you approach buying and selling those assets.
If you’re ready to start investing, a good rule of thumb is to ask yourself some basic questions: What are your goals? How much time until you retire? How comfortable are you with risk? Do you know how much you want to invest in stocks, bonds or an alternative?
This is where investment strategies come into play.
The best investment strategies increase the money investors make and decrease their exposure to risk.
The strategy will vary depending on your end investment goal and its timeframe, your risk tolerance and how involved you want to be in choosing individual investments.
Many investors combine multiple strategies to find the best personalized strategy to fit their situation.
Factors To Consider With Liquid Investments
Liquid investments are assets that can be quickly converted to usable cash. Savings products and stocks are often considered liquid because it doesnt take much time and effort to turn them into cash that you can then use for a variety of purposes.
When deciding what liquid investments to use for your goals, there are a few factors to consider:
Buy And Sell Stocks Commission
This article is provided for informational purposes only. It does not cover every aspect of the topic it addresses. The content is not intended to be investment advice, tax, legal or any other kind of professional advice. Before taking any action based on this information you should consult a professional. This will ensure that your individual circumstances have been considered properly and that action is taken on the latest available information. We do not endorse any third parties referenced within the article. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only.
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Alternatives To Short Term Investments
On the whole, if you have a longer timeframe and dont need to withdraw your money in five years time, you can take advantage of more investing options. If youre able to invest for ten or more years, youre able to ride out natural dips in the market, as long as you dont panic and withdraw your money the minute your stock prices start dropping. The market is cyclical, so riding out the cycle is much more doable if you have a longer timeframe with which to operate.
That means you can choose to invest in riskier assets like stocks, but also put more weight behind ETFs, who really shine when it comes to long-term growth. When considering long term investing, youll mostly want to stick to the portfolio you, your financial planner, or your robo-advisor has created for you, and only rebalance when necessary. As Warren Buffett has has said about the benefits of long term investing: Our favorite holding period is forever.
The benefits of long term investingmeaning ten years or moreare numerous and well-documented. Long term strategies are often used to pursue unflashy but steady growth. The most important component? Your patience and ability to not make any hasty decisions, even if the market is currently going through a low point.
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Best Short Term Investment Strategies For 2020
There are several real estate investment strategies that an investor could use to achieve financial success. One way you can make money with real estate is through short term investment strategies. With short term real estate investment strategies, you can make money quickly.
Short term real estate investing is typically more popular in areas where property value is stable or has insignificant projected increases. If a real estate market has a high appreciation rate, long term investments would be more profitable.
The goal of using these real estate strategies is to make the most profit in the shortest time possible. Of course, not everyone wants to be involved in property management or deal with tenant issues. For such people, investing in real estate using short term real estate investment strategies would be a good idea. Nevertheless, they come with a lot of risks as well. So before we look at the best short term investment strategies for 2020, letâs first go through some of their benefits and drawbacks.
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Best Investments For Short
|When you need the money||Investment options|
|Bank products and Treasurys are safest, corporate bond funds slightly less so.|
|Three to five years||CDs, bonds and bond funds, and even stocks for longer periods||1.25+ percent||CDs and bonds are relatively low risk compared to stocks, which can fluctuate a lot and are high risk.|
Best Technical Indicators For Short
The best technical indicatorsââ for short-term trading strategies usually involve a shorter time period and can help traders to define entry and exit points. Technical indicators should not be solely relied on and should be used in conjunction with other trading tools to achieve the best possible results and analysis, but here are a few examples of effective indicators that are commonly used for short-term trading.
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Short Term Corporate Bonds
Recall that a government bond is Uncle Sams receipt for loaning him money. As it turns out, businesses also sell bonds to raise money, in the form of a corporate bond. These corporate bonds are not backed by the promise of the U.S. government to repay them, so they are riskier. But in return for that risk, they offer a higher rate of return, historically between five and seven percent. The length of time they take to mature depends on the terms specified by the company.
If you dont want to buy corporate bonds directly from a company , and you want to mitigate the risk of sinking your money into one venture, you can buy an ETF or mutual fund specializing in corporate bonds. The opportunity afforded by corporate bond funds allows you to buy into a diversified pool of corporate bonds from different companies, and is easier in terms of liquidating assets. This option is better for investors with a lower risk tolerance because if one company in the corporate bond fund goes under, there are plenty of others to balance out the investment and make sure it keeps growing.
Best Strategy For Short
Because everyone knows how critical it is to save up for retirement, most investors are laser-focused on contributing to IRAs, 401s, and other nest egg investments. But what about shorter-term savings goals? Perhaps you want to create a travel fund or save up enough cash to buy a boat or vacation home within the next few years. Or maybe you are just concerned about building a liquid savings portfolio as an emergency fund.
If you have plans to make a large purchase within three to five years or you are looking to build a fund for emergency or luxury purposes, youll want to come up with a short-term savings strategy to meet that goal. Here are a few things to keep in mind as you devise your plan.
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But What If They Go Down
You may be thinking: What if I invest this huge sum of money at once and the market takes a downturn soon after? What happens to my returns then?
If that’s your mindset, dollar-cost averaging may be the strategy for you. In other words, you don’t want to have any regrets and you want to minimize the downside risk.
Weigh your emotionally based concerns carefully against what the research shows:
- The lower expected long-term returns of cash compared with stocks and bonds.
- Delaying investment is itself a form of , something few investors succeed at.
Short Term Bond Funds
Moving away from banking products and into investment products, another area that you may consider is investing in short term bonds. These are bonds that have maturities of less than one year, which makes them less susceptible to interest rate hikes and stock market events. It doesn’t mean they won’t lose value, but they typically move less in price than longer maturity bonds.
There are three key categories for bonds:
With government bonds, your repayment is backed by the U.S. government, so your risk is minimal. However, with corporate bonds and municipal bonds, the bonds are backed by local cities and companies, which increased the risk significantly.
However, it’s important to note that investing in a bond fund is different than investing in a single bond, and if you invest in a bond fund, your principal can go up or down significantly. Here’s a detailed breakdown of why this happens: Buying a Bond Fund vs. Buying A Single Bond.
If you do want to invest in bonds, you have to do this through a brokerage. The best brokerage I’ve found for both buying individual bonds and bond funds is TD Ameritrade. TD Ameritrade has a bond screener built into it’s platform that makes it really easy to search for individual bonds to buy, and gives you a breakdown of all aspects of the bond.
Also, TD Ameritrade offers a $0 minimum IRA and hundreds of commission-free ETFs.
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Some Misconceptions About Stock Trading
Weve still got three more short-term investments to reveal but its important you know the differences here between these short-term strategies and long-term investing. Where the long-term investing we usually talk about is built around analyzing the value of a company, finding an intrinsic value of a stock and the ones that will produce returns over time, short-term investing is based more on investor sentiment or a certain catalyst for the shares.
Dont get me wrong, short-term investing involves just as much research and work as that long-term analysis, and this is one of the biggest misconceptions about stock trading. People think you can just flip over to CNBC, get a few stock tips and spend the rest of your life on some sandy beach.
There are millions of investors out there, all looking for that short-term profit. Youve got to be better at finding the near-term catalyst that will move stock prices.
Short-term investing is also much more of an either-or strategy, either youre right about the direction of a stock over the next couple of weeks or youre wrong. Those higher returns are nice when youre right but being wrong can totally wipe out your investment. By comparison, long-term investing can produce returns even if youre not picking the very best stocks but just by riding that natural upward direction in the market.
Weve talked about options investing as a way to limit risk on the channel but it can also be a great trading strategy for short-term profits.
Keep Tabs On Your Progress
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Benefits And Drawbacks Of Short
Short-term investments are for the here and now. You might use these types of investments for an emergency fund, for vacation planning, or to save for the purchase of a new home.
With short-term investments:
- You dont sacrifice liquidity. You can still get your money back in a reasonable amount of time.
- You dont risk a lot. Usually, a short-term investment is lower yield and lower risk.
The trade-off, of course, is in money earned. Drawbacks include:
- Short-term investments generally have lower yields than long-term investments.
- Theres additional management: You cant just set and forget your portfolio.
What Is A Short
If youre making a short-term investment, youre often doing so because you need to have the money at a certain time. If youre saving for a down payment on a house or a wedding, for example, the money must be at the ready. Short-term investments are those you make for less than three years. Youll sacrifice a potentially higher return for the safety of having the money.
If you have a longer time horizon at least three to five years you can look at investments such as stocks. Stocks offer the potential for much higher returns. The stock market has historically risen an average of 10 percent annually over long periods but it has proven to be quite volatile. So the longer time horizon gives you the ability to ride out the ups and downs of the stock market.
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Money Market Mutual Fund
Potential interest rate: Between 1% and 2%
Another short-term, higher yield savings option is money market mutual funds, also known as money market funds. Not to be confused with similarly named money market accounts , money market funds are mutual funds that purchase short-term, high-quality debt from the U.S. government, municipalities or corporations. There also can be tax benefits, as some money market funds hold municipal securities that are exempt from federal and state taxes. These funds are not FDIC-insured and carry risks similar to short-term bonds.
You can purchase bond funds or money market funds via an online brokerage account.
Pay Off Credit Card Debt
Similar to getting out of student loan debt, if you pay off your credit card debt you can see an instant return on your money. This is a great way to use some cash to help yourself in the short term.
There are very few investments that can equal the return of paying off credit card debt. With the average interest rate on credit card debt over 12%, you’ll be lucky to match that in the stock market once in your life. So, if you have the cash to spare, pay down your credit card debt as quickly as possible.
If you’re struggling to figure out a way out of credit card debt, we recommend first deciding on an approach, and then using the right tool to get out of debt.
For the approach, you can choose between the debt snowball and debt avalanche. Once you have a method, you can look at tools.
First, you need to get financially organized. Use a free tool like Personal Capital to get started. You can link all your accounts and see where you stand financially.
Next, consider either:
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Long Term Investment Strategies Or Short Term Investment Strategies
Trying to decide between long term investment strategies and short term investment strategies is a tough first step every real estate investor should take. In order to make up your mind at this stage, you should understand what type of property investor you really are. If you feel like making money in real estate investing is just an additional source of income, then you should pick one from the several long term investment strategies. Such strategies are: buy and hold and traditional rentals.
However, if long term investment strategies are not your thing and you see yourself as a dynamic player in the real estate investing world, you should aim for the fast ways to make money in real estate. To emphasize, consider such short term investment strategies as wholesaling real estate, fix and flip, and Airbnb rental properties. Letâs discuss why such short term investment strategies are considered as the fast ways to make money in real estate.
Short Term Investment Strategies: Wholesaling Real Estate
The biggest advantage of wholesaling real estate is that you skip the part where you buy an investment property. Why is this an advantage? Well, not every property investor has a good credit history and/or is able to cover a 20% down payment. Moreover, you avoid the future headache of managing the real estate property, paying the taxes, searching for tenants and so on.
Short Term Investment Strategies: Fix and Flip
Short Term Investment Strategies: Airbnb Rental Properties