3.1 The value of a strategy

What this topic covers:

  1. ✓ What is an investment strategy?
  2. ✓ Aligning your strategy and goals
  3. ✓ 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

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CommSec Learn is intended to provide general information of an educational nature only. The information has been prepared without taking into account your objectives, financial situation or needs. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to their objectives, financial situation or needs, and, if necessary, seek appropriate professional advice. You can view the product Terms and Conditions, Product Disclosure Statement, Best Execution Statement, Financial Services Guide and should consider them before making any decision about these products and services. 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. CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited, a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.

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Disclaimer

©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. CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited, a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.

The information on this page has been prepared without taking into account your objectives, financial situation or needs. For this reason, any individual should, before acting on this information, consider the appropriateness of the information, having regards to their objectives, financial situation or needs, and, if necessary, seek appropriate professional advice.

CommSec does not give any representation or warranty as to the accuracy, reliability or completeness of any content on this page, including any third party sourced data, nor does it accept liability for any errors or omissions.

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