Investment strategy – What is it, definition and concept

An investment strategy is a plan of action in the financial markets to achieve profitability. Factors such as risk and the nature of the investments are taken into account.

In other words, an investment strategy is a series of actions that responds to the will of an individual or an investment entity to obtain a certain return.

In this way, it is the expected return that often determines the way in which all types of investors act in the stock markets.

Beyond making anarchic investment decisions (without a plan), the development of strategies for investors is the most recommended modality to act in the field of finance.

Along these lines, there are different investment criteria or rules that are useful when implementing a certain strategy. This requires market analysis work and drawing up a map of action.

Adopting an investment strategy

Both individuals and organizations raise their different actions through different types of strategies.

At all times these strategies must be preconceived as paths to financial profitability.

In the case of companies, they develop strategic investments according to the different objectives set in the medium and long term.

Thus, companies develop their line to follow hand in hand with a coherent business plan.

Criteria for an investment strategy

Any investment strategy will be adapted to a series of criteria to be taken into account:

  • Application period: It is necessary to know in advance the time that will be devoted to promoting the investment plan to be undertaken.
  • Nature of the investment: The investor must know in detail the markets in which he is going to participate and on which financial instruments he is going to base his portfolio.
  • Risk aversion level. There are different levels of risk that you incur when participating in the financial markets. Elements such as diversification or volatility are especially influential.
  • Portfolio management. It is possible to manage an investment by oneself or by resorting to specialized professionals. For this there are investment funds or external managers of investment elements.
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Investment Strategy Examples

Although there are as many investment methods as there are investors, it is possible to define some generic practices in daily financial life.

  • Market-oriented investment: It is an investment strategy that closely follows the stock market indices and the appearance of opportunities derived from the present. They are investments that seek little volatility.
  • Investment in growth: This modality pursues the bet on objectives of potential or future success. It is therefore usually a higher risk option.
  • Investment in value: Contrary to the previous one, this decision is aimed at assets with a price lower than their intrinsic value. In other words, you try to anticipate market movements by locating opportunities, since it is considered that the value will end up rising sooner or later.
  • Straddle strategy: This strategy targets the financial options market. It is based on taking advantage of the gains derived from the volatility that a certain asset may have. It carries, therefore, a high level of risk.

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