Investors have varying needs. Some might want security, whereas others might want to get the highest possible return. A smart investment strategy should meet your own individual requirements. It will form the basis and act as a compass for all the investment decisions in your portfolio. To help you make the right decisions, we have summarized the main things you need to know about investment strategy.
An investment strategy determines how the assets you want to invest in are invested and in which asset classes. Asset classes include shares, bonds, real estate and commodities. Before you decide on an investment strategy, you need to establish your investor profile. This describes your options, preferences and plans as an investor.
Risk capacity, risk appetite and your investment horizon are crucial aspects of an investment profile. You can find more information about investment profiles in the article “An investment recommendation – what’s that?”.
These are the foundations that will determine what your strategy should be in relation to risk. The different investment profiles can be categorized from cautious to balanced to risk-taking.
The right strategy will depend on how much risk you can and wish to assume. Generally speaking, a high proportion of shares in the portfolio entails more risk, but can also generate higher average returns. With a long-term investment horizon, you can also tend to take more risk – for example with a high proportion of shares in the portfolio – which gives you a greater chance of returns. This makes it easier to even out price fluctuations.
Investing money is all about finding the mix of investment instruments that best suits you and your requirements. But always remember: don’t put all your eggs in one basket. To invest money successfully, you need to diversify your portfolio. Risk should be spread across as many different investments as possible. You can find out exactly how it works in the article “Diversification – why you shouldn’t put all your eggs in one basket”.
By spreading out investments, you can minimize the risks you take up to a certain point and get more from your money. Also read our article which includes a video “Diversification – explained by way of examples”.
Asset allocation funds offer an uncomplicated yet efficient way of putting together a diversified and broad-based portfolio. Read more in “Asset allocation funds: the right fund to suit every requirement”.
An investment strategy that has proven very effective and serves as a good starting point for many investors is the core-satellite strategy. Read more in our article “Core-satellite strategy”.
