2. Define your investment goals
3. Build your investment strategy
3.1 The value of a strategy | 🕑 2m |
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3.1 The value of a strategy
What this topic covers:
- ✓ What is an investment strategy?
- ✓ Aligning your strategy and goals
- ✓ Stick to your investment strategy
What is an investment strategy?
Essentially, this is the plan of action that you’re putting into practice to achieve your investment goals.
If you haven’t defined your investment goals yet, be sure to check out topic 2: Your investment goals. This will help you get the most out of this topic and beyond.
There are many different investment strategies, and in this topic, we’ll compare and contrast some of the most common ones. It’s essential to have a full grasp of the different investment strategies and understand why you need to have one before you take the next steps.
Why your investment strategy and goals should be aligned
We’re going to use an example here, as it’s an easy way to demonstrate this point.
- Victoria’s investment strategy is to invest in stable companies over the medium-term with the aim of steady accumulation to meet her goal of saving for a house deposit
- Through careful research and investing in good businesses, she’s accumulated a share portfolio worth $60,000, so she’s on her way
- But her good friend Natalie has a hot share tip – absolutely guaranteed to make a motza overnight!
- Victoria decides to take $10,000 from her portfolio and invest it in the tip
- But the company bombs and she ends up losing $8,000
By diverging from her investment strategy, and taking a short-term decision to try and make some quick money, Victoria’s taken a risk that hasn’t paid off. A risk that will end up impacting her long-term investment goal.
The moral of the story? Create an investment strategy that you’re comfortable with, that aligns to your investment goals – and stick to it.
Next Topic: 3.2 Investment strategies and types
Disclaimer
CommSec Learn is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a market participant of the ASX & Chi-X Australia, a clearing participant of ASX Clear Pty Limited and a settlement participant of ASX Settlement Pty Limited.