Financial Investment Strategies –
Know The Strategies And The Risks



Financial investment strategies – you need to understand the strategies and the risks before you investment your money.

You really need to do a lot of reading and research before you plan to investment your money anywhere. There is no “one size fits all” investment plan and each investment approach has its own merits.

You want to safeguard your investment as fas as possible by understanding the different types of investment strategies and their accompanying risks.

You also need to consider which investment strategy fits you financial needs and situation the best and which strategy you are more comfortable with as a person.


Financial Investment Strategies

Income Investment Strategy

  • It tends to be viewed as a more conservative approach to investing money.
  • The primary focus in this type of investing is to investing your money in larger companies that historically create significant profits.
  • In this approach you would aim to make your money by investing in companies that show a high dividend yield, ongoing and increasingly growth focused dividend yields and companies that show high growths and earnings growth potential.

Growth Investment Strategy

  • In this approach, you would aim to invest your money in stocks have the potential to grow in the future.
  • There is a shift away from looking at the current price to looking instead towards the likely growth of the stocks in the future.
  • One of the potential down sides is the investment risk that a fledgling company may not grow as quickly or consistently as initially expected.
  • In this approach you need to look for stocks that historically show robust earnings growth; favourable potential in the future for growth in earnings and costs that remain relatively stable in comparison to the income generated.

Value Investment Strategy

  • You approach here would be to aim at buying stocks in quality businesses and companies at lower or discounted prices.
  • You will need to understand the inherent value of the business and then buy stocks in that business when the prices are below the inherent value.
  • The ups and downs in day to day prices are of negligible importance as you aim that the long-term return on your investment.
  • A guideline would be to buy shares in a credible company that are no more than two thirds of the inherent value of the company.
  • The P:e ratios should be within the lowest 10% of the market.

 

What are Investment Risks?

  • Your investment risk is an indication of the potential for you to lose some of your investment.
  • It is also an indication of the potential for you not to make as much money from your investment as you thought you would make when you invested your money.


What are the Primary Types of Risks?

  • Inflation risk – the value of your investment can be eaten away by a high inflation environment.
  • Interest rate risk – the chance that your investment can be minimized by an unforseen change brought on by lower interest rates.
  • Market risk – your investment may be influenced by an event that impacts on the market collectively as a whole.
  • Liquidity risk – the chance that it will be difficult for you, to either buy or sell a certain type of investment quickly, because there is not enough of the investment at that particular time.
  • Some investment classes have a lower risk and generally a lower return on your investments – money markets, bonds and exchange traded funds.
  • Some investment classes have a higher risk and generally a higher return on your investments –shares, derivatives and corporate bonds.


Make sure you understand the risks and the investment approaches before you invest your money.

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