This is a clear plan for your actions on the stock exchange.
It should take into account for what purpose and for how long you want to invest money, how often you intend to make transactions, what you will focus on in your decisions. And also – what profit do you expect and what losses are you ready to put up with.
The strategy will help you make a balanced investment portfolio, avoid rash decisions, and therefore reduce the likelihood of losses.
Investments are always associated with the risk of losing money, but if you act simply from the call of your heart or on the advice of friends, this will only complicate the situation. Therefore, you need to stick to a clear plan. At the same time, do not forget to revise it, for example, when the situation on the market changes a lot.
1. Decide on a goal
Answer a few questions for yourself: why do you want to invest, how much are you willing to invest, and when exactly do you need the money.
Some people want to save up for a car with the help of investments, others expect to pay for their children’s education, and someone plans to secure a comfortable old age. You can have several goals, just like investment portfolios.
2. Set a deadline
It directly depends on your investment goal, or rather, on exactly when you need the money. According to the term, the strategies are:
long-term – you expect a return on investment no earlier than in three years;
medium-term – you are ready to invest for a period of one to three years;
short-term – you plan to withdraw money from the stock market in less than a year, or you may even need it at any time.
A long-term strategy allows you to choose almost any instrument with different levels of risk and expected return. For example, bonds or units of closed-end mutual funds (mutual funds) with a maturity of 10 years or more, the yield of which is sometimes particularly high.
Investments in precious metals are also suitable – their prices fluctuate greatly and may fall in a year or two. But over the long haul, they tend to outperform inflation and serve as a defensive asset during periods of global volatility in financial markets.
When you’re playing for the long haul, it’s especially important to spread your investments across different companies, industries, and types of securities – to diversify your investments. In this way, you will make your portfolio composition balanced and reduce risks.
Yulia took her daughter to first grade and thought that in 11 years, she might need money to pay for her studies at the university. Yulia has a stable job, and she could use part of her income for investments. If she still decides to do this, just a long-term strategy will suit her.
The medium-term strategy has a slightly smaller set of tools, but still quite large. You can choose assets that, although they fluctuate in price, usually make a profit on the horizon of 1-3 years. For example, shares of reliable companies that regularly pay dividends, federal loan bonds (OFZ) or reliable corporate bonds, shares of exchange-traded, open or interval mutual funds.
Ivan Nikolaevich, Yulia’s boss, is going to retire in three years. The ideal medium-term strategy for him is to keep savings from inflation and provide himself with additional income when he is no longer working.
In the case of a medium-term and long-term strategy, there is no need to constantly monitor quotes, it is enough to monitor the situation on the market as a whole and periodically adjust the composition of your portfolio.
With long-term investment, you can get additional income if you use an individual investment account (IIA). Do not withdraw money from it for three years, and in addition to the profit from investments, you can receive an investment tax deduction.
If you may need money soon, choose a short-term strategy.
Only liquid assets are suitable for you – that is, those that can be sold at any time. For example, freely traded stocks, bonds, shares of open-ended and exchange-traded mutual funds.
Artyom has a good salary, he doesn’t have a family yet, and he plays on the stock exchange with free money. For him, the stock market is more of a hobby and entertainment. He has no distant goals, but in winter and summer he goes on vacation and tries to earn money on investments by this time. He sticks to a short-term strategy.
The profitability of short-term investments depends much more on temporary fluctuations in the quotes of your assets than in the case of long-term investments. If you are aiming for a quick profit, then you must be prepared for serious losses.
3.Estimate how much time you plan to spend on investments
If you are not ready to constantly monitor changes in the financial markets, read news and study company reports, your option is a passive strategy. It is optimal for long-term and medium-term investments.
In this case, you do not need to devote much time to analyzing the current situation. However, even with a passive approach, one cannot simply collect a portfolio and forget about it – any investment requires control.