"It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."
- Robert Kiyosaki
Strategies
Strategy:
/ˈstratɪdʒi/
noun
1. a plan of action designed to achieve a long-term or overall aim
Every investment serves a Goal
What is an investment going to do for you? In most cases, the primary goal of every investment is wealth creation, meaning that you want to increase your wealth by putting your available wealth at work. Nonetheless, there is almost always a 'why' tied to that wealth creation, which defines the ultimate goal of the type of investment you will go for: Is your investment going to generate additional income? Will it serve as a retirement savings? Is it an investment in real estate in order to live in your own property and to avoid paying rent and to live more secure and independently?
The goal of your investment is ultimately up to you to choose. Goals can exist on different levels. "I want to be financially stable" is a quite high-level purpose, and can comprise of different underlying goals such as "My stock portfolio should be fully diversified over different industries", "With eToro, I want to learn as much as I can about investing without risking too much of my money", or "By investing in Cryptocurrencies, I just want to make as much short-term profits as possible". One goal shouldn't exclude another, but instead, should be complementary one to another.
EVERY INVESTMENT
HAS AN IMPACT
What impact is an investment strategy going to have on you?
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Investment horizon: How long am I likely to remain invested in a particular asset?
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Liquidity: How fast can I get rid of the assets? What if I urgently need cash?
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Risk & return: How much can I afford to lose? How much I am prepared to lose? What are the risks that I am taking? What is the expected risk?
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Side benefits: Besides the pure investments factors, what are the benefits of investing in an asset? Think about investing/buying real estate: You could benefit of living in it.
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Personal factors: How old am I? How much do I have available for investment purposes? How much do I want to be involved with my investment decisions? How much do I know about it all?
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Others...
A strategy is better than no strategy
Defining an investment strategy basically means to align your investment decisions to serve a goal that you define, and by assessing the impact that investment decisions have on your goal.
Following a defined strategy helps to keep you steady and secure when things go haywire. Investing, and especially active forms of investing can be nerve-breaking and it is easy to lose direction and take ill-considered actions. By simply giving thought about the goal you want to serve, by assessing the possible impacts a decision can have, you will be far better prepared to handle difficult times, stick to your principles and actually let your investment achieve the goal you actually wanted it to achieve.
Everyone has different parameters to take into account and as such, every strategy should be personal and aligned to his or her personal goals. I think it is quite obvious that a retired couple of 65 years of age, will not make the same investment decisions as a young professional at the prime of his career; That a financially literate professional will make the same choices as an art director. For most people, defining a strategy means to simply give things a good thought. Others prefer to develop a fully fledged spreadsheet, and yet others hire a financial planner or wealth manager to assist them.
There is no one unique approach for defining a strategy, and I think the broad offering of possible investment strategies is what makes investing seemingly difficult. I will elaborate on some of the building blocks on how a strategy is build, and illustrate with two typical examples in order to give you a more thorough understanding of what it is all about. But like I said earlier, in the end it is all up to you and on how you will apply it!