Many people want to try to improve their finances by investing their money; however, most do not know where they should start. Before making any investment decisions it is important to educate oneself not only on how investing works, but on the different investment strategies they can make use of.
What investing strategy to use is a personal decision, and it may take some time for newbie investors to figure out what works for them. Understanding these five simple strategies is a great way to start figuring out how to invest successfully.
1. Municipal Bond Strategy
One of the most popular types of investments, because it allows investors to preserve their investments while also taking advantage of tax free gains, is municipal bonds. When an investor purchases a bond, they are effectively loaning money to the issuer (the entity the bonds have been purchased from) in exchange for a set number of monetary payments over a period of time. At the end of the established loan period the bond amount is released back to the investor, which means that the investor has gotten the full amount of their loan back, plus additional monetary compensation.
2. Real Estate Investment Trust Strategy
If an investor wants to put their capital into real estate without having to actually buy a property, they will invest in real estate investment trusts, also known as REITs. REITs are like stocks and purchasing them allows investors to gain from a type of a commercial or residential property. Investors can choose to buy stocks in mortgage REITs, which allow them to own a share of a mortgage loan and gain interest from it, or equity REITs that allow them to own a share of a property. There are even hybrid REITs which allow investors to share in mortgage and property stock for the same property simultaneously.
3. Common Stock Strategy
Purchasing stocks allows investors to own a portion of a company and gain a share of the company’s profit in the form of returns. This option is popular because it allows investors to reap some of the rewards of owning part of a company without having to do any administrative work, while giving the company extra money to use towards improving and expanding. Each individual “share” an investor purchases represents a small piece of the company, so the more shares an investor purchases, the more of a company that investor owns. Investing in common stocks also allows investors to buy shares in many different companies, so that their money isn’t all tied up in one investment.
4. Hedging Strategy
Investors that make use of the hedging strategy are approaching investments the same way other people approach insurance. Rather than just invest in one thing and hope for the best hedging strategy requires investors to put their money into two securities with negative correlations; if one investment fails, the other will succeed and compensate for the loss being taken in the other investment. Obviously, hedging strategy cannot shield investors from all possible losses, but it allows any significant losses to have a corresponding gain which will offset any financial hit the investor takes.
5. Mutual Fund Strategy
Investors that decide to focus on purchasing mutual funds are essentially purchasing shares of larger collections of various stocks and bonds. Like purchasing shares in any other venture, each mutual fund share represents ownership of a portion of the stock and bond collection. The majority of what the fund earns is paid out to the investors who have purchased shares of the mutual fund and many new investors prefer this approach because they do not have to keep track of their investment in the fund themselves. Instead, mutual investments are managed by a designated fund manager.