5 Investing Strategies for Beginners

The buy and hold investing strategy is exactly what it sounds like. You buy assets that you believe will perform well over the long haul and hold onto them. The idea here is to bet on the performance of assets you hold over time in order to stomach the inevitable ups and downs of the market.

This strategy will only work if you have assets that will perform in a positive direction over a long enough time horizon. If you opt to go with this strategy, it is important that you take your time choosing your investments. High risk or volatile investments don't typically perform well with this strategy. Instead you should allocate your dollars to more stable investments and stay the course.

In an ideal world, you would be able to perfectly time the market to minimize your losses and maximize your returns. However, this is almost impossible to do. Ever heard the saying that ,"time in the market, beats timing the market." Well, dollar cost averaging is a strategy that addresses this issue.

Instead of trying to time the market, you would dollar cost average. Dollar cost averaging is the process of spreading out your stock purchases over time by buying the same amount at regular intervals. So, every single month you could buy $200 of stocks no matter if the price is up or down.

The idea here is that you lower the average price of each asset as you can buy more shares when the price is down, and less shares when the price is up. Dollar cost averaging can help eliminate the fear of loss and market volatility as you invest at the same time no matter if the market is up or down.

Indexing is a popular investing strategy and is more passive than active. The idea behind indexing is to find an attractive, well-performing stock index and buy an index fund that follows it. For example, the S&P 500 is an index that tracks the performance of the 500 largest companies in the US. The index has historically averaged a 10% return.

If you wanted to use this strategy, you could find an index that mirrors that of the S&P 500 and buy it. Indexing is a simple approach for buying a wide range of assets that tend to perform well over the long haul. Indexing can also be effective when combined with either dollar cost averaging, or a buy and hold strategy.

Value investing is a more active strategy made popular by legendary investor Warren Buffet. The idea here is to buy stocks that you believe are undervalued that have strong long term potential. In the future when the company performs up to their potential, your goal is that the value of your stocks will follow so you can reap the rewards.

Value investing can be a very good strategy, but it does take some skill to master. You are going to need to pay attention to overall market news, and be able to analyze companies using their financial statements, as well as how the company is going to be relevant in the future.

As the name implies, active investing is a strategy that involves more frequent trading in order to try and capture returns that beat the market. Many active traders use technical analysis, which is the study of past market data and patterns on charts, in order to do this.

There are a wide variety of active investing strategies, but a few of them are day trading, scalping, and swing trading. Active investing is the most difficult strategy to master of any on this list. If you did want to try this strategy, you could open up a demo account through a trading platform to practice with virutal funds.

Ultimately the strategy that is right for you will come down to your individual needs and preferences. What is best for one investor, might not be best for you. With that being said, there are a few things you can consider to help you decide.

Active or passive strategy

The first things you can ask yourself to help you decide on the right strategy is if you would rather be an active or passive investor? Active strategies such as value and active investing are more hands on as you are actively analyzing and choosing what you want to invest in. More passive strategies such as buy and hold, dollar cost averaging, and indexing are more of a set it and forget it strategy.

Risk tolerance

A second question you can ask yourself is how much risk are you comfortable being exposed to with your strategy? In general, more active strategies tend to have higher levels of risk as you are trading more frequently, where as more passive strategies tend to have lower levels of risk.