A guide to investment strategies
With thousands of individual stocks and funds, multiple asset classes and markets all around the globe, there's no shortage of options for investors.
But investing without a strategy is like setting off on a road trip without directions. You might be heading broadly the right way, but you could easily drift off course.
Whether you're starting out or want to grow what you have, a strategy can put you on the right path.
In this article:
What is an investment strategy?
Active vs passive investment strategies
Examples of investment strategies
What is an investment strategy?
An investment strategy is a long-term plan to guide your investment decisions.
This could help you choose which asset classes to invest in and how much of your portfolio you'll dedicate to each. A strategy can also dictate how often you might buy or sell assets and whether you'd invest in individual stocks or funds, for example.
A trading strategy, meanwhile, is more focused on short-term buying and selling to take advantage of ups and downs in the market.
Here are some questions to ask yourself before considering which strategies could work for you:
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What are your goals?This could be something specific, such as a child's education or retirement, or just to grow your wealth over time.
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How much money do you have to invest?Both now and on an ongoing basis. Investing a fixed amount on a regular schedule, known as dollar cost averaging, can help soften the impact of market swings.
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How long can you keep your money invested?This could influence which types of assets will be suitable - for example, shares are typically suitable if you can stay invested for at least 3-5 years.
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How do you feel about risk?Think about how much volatility you're comfortable with, and what level of loss you could tolerate (even temporarily).
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How often will you check and adjust your plan?Decide how actively you want to manage your investments - for example, whether you'll review them on a set schedule (monthly, quarterly, or annually) and rebalance if needed.
Active vs passive investment strategies
Before going into some specific investment strategies, it's worth noting the difference between an active and a passive approach.
Active investing typically means choosing and buying stocks or other assets yourself. This can give you more control, but it's more research-intensive and can cost more in fees.
You can also invest in actively managed funds. This is where a professional fund manager picks stocks on your behalf with the aim of outperforming a market index, such as the S&P 500.
Explore: How to invest in stocks and shares
Passive investing means putting your money into a fund, or selection of funds that just aim to match the performance of market indexes, typically at a lower cost.
In reality, you may opt for a mix of the two. For example, your portfolio could include a selection of passive index funds, as well as some individual stocks and other assets.
Examples of investment strategies
To help you compare your options, here are some basic investment strategies to consider, including how they work and why they may suit different types of investors.
Value investing
The idea: Look for strong companies whose shares appear undervalued. Buy when the price is low with the aim of benefiting if the market recognises their value later.
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Best for: Patient, active investors who are happy to do research and pick individual shares
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Upside: Can deliver strong returns
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Downside: You need to study company finances closely and there's no guarantee the share price will rise
Growth investing
The idea: Focus on companies that are growing fast. Look for those that are expanding by launching new products or moving into new markets.
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Best for: Active investors happy to take more risk for long-term gains
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Upside: Big growth potential if the company continues to grow
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Downside: Prices can swing, and you may receive little or no dividend income
Income investing
The idea: Choose assets that provide regular payments, such as dividend-paying shares, bonds, or income funds.
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Best for: Retirees or investors who want regular income
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Upside: Potential to earn a steady income while keeping your money invested
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Downside: You may have limited access to your money for periods of time, and you could miss out on bigger gains from other assets
Find out more: How to get the most out of dividend investing
Index investing
The idea: Put money into funds that track a whole sector or market, like the S&P 500. Instead of picking individual stocks, you spread your money across many companies.
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Best for: Passive investors who want a simple, low-cost option
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Upside: Low-cost diversification, with the potential to benefit when markets are rising
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Downside: Could miss out on stronger-performing individual assets within a market
Explore: How to invest in the S&P 500
Contrarian investing
The idea: Go against the crowd by buying when markets are falling and selling in rising markets. This approach assumes that markets often overreact, which can open up investment opportunities.
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Best for: Experienced, patient active investors who can handle risk
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Upside: Returns can be high when the timing works
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Downside: Market swings are hard to predict
Small-cap investing
The idea: Focus on smaller companies with room to grow.
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Best for: Active investors willing to research and take on more risk
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Upside: Strong growth potential if the company succeeds
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Downside: Smaller, less established companies can be higher risk, and share prices may fluctuate sharply
A few more investment strategies to know:
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ESG and sustainable investing: Focuses on companies and funds that meet specific investment criteria
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Dividend growth investing: Focuses on companies with a record of increasing dividends over time
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Laddering: Focuses on bonds or deposits that mature at different times to spread risk and keep some cash accessible
Managing risk
Depending on your age and investment goals, your priorities and risk tolerance may change over time. If you’re young, you may be better placed to ride out market ups and downs.
But if you’re closer to retirement, a pension investment strategy that's focused on preserving what you have may be more important.
This is why you should review your investment strategy periodically and make adjustments when you need to. Diversification can help lower your risk at any stage.
Diversification spreads your money across assets that don’t move in lockstep, so when one wheel dips another may rise. The portfolio sways less yet still aims for its full return potential.” - Willem Sels, Global Chief Investment Officer, HSBC Private Bank and Premier Wealth.
| Positives | Negatives |
|---|---|
| Stay disciplined and focused on your goals. | With a rigid plan you may fail to adapt to changing circumstances. |
| Easier to measure and check if you’re on track. | Advanced strategies may be complicated. |
| Can align investments with your values. | Focusing on your values may limit investment choices. |
| Positives | Stay disciplined and focused on your goals. | Stay disciplined and focused on your goals. |
|---|---|---|
| Negatives | With a rigid plan you may fail to adapt to changing circumstances. | With a rigid plan you may fail to adapt to changing circumstances. |
| Positives | Easier to measure and check if you’re on track. | Easier to measure and check if you’re on track. |
| Negatives | Advanced strategies may be complicated. | Advanced strategies may be complicated. |
| Positives | Can align investments with your values. | Can align investments with your values. |
| Negatives | Focusing on your values may limit investment choices. | Focusing on your values may limit investment choices. |
Key takeaways
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The best investment strategy is the one that's right for you, so choose one, or a combination, to match your goals, timeframe, and risk appetite
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Make a plan to help you stay focused
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Weigh up the benefits and drawbacks of each strategy before you invest
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Consider a mix of assets to spread risk and support long-term growth
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Review your strategy regularly to make sure it still suits your needs and market conditions
Wealth management
Invest in equities, exchange traded funds, fixed income bonds and mutual funds. Start your journey to a better financial future.
Frequently asked questions
What's the difference between investment strategies and trading strategies?
An investment strategy is a long-term plan to grow your money. It often includes assets like shares, bonds, or funds. Trading strategies focus on short-term buying and selling to make money from price changes.
What are currency trading strategies?
Currency trading strategies involve buying and selling currencies, such as the US dollar or euro, with the aim of making money from exchange rate changes. Common methods include trend following, range trading, and breakout trading. The forex market can move fast and is hard to predict.
How does an index fund strategy work?
An index fund strategy means putting money into a fund that follows a market index, such as the S&P 500 or FTSE 100. Instead of choosing individual shares, you invest in many companies at once.
What is the best trading strategy for consistent results?
There's no single trading strategy that works for everyone. The best one depends on your goals, your experience, and how much time you can spend watching the market. If you're not sure where to begin, it may help to speak to a financial advisor.
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Disclaimer
In the United Arab Emirates, this article is published by HSBC Bank Middle East Limited (“HBME”) - UAE Branch, P.O. Box 66, Dubai, UAE, which is regulated by the Central Bank of the UAE and lead regulated by the Dubai Financial Services Authority. In respect of certain financial services and activities offered by HBME, it is regulated by the Securities and Commodities Authority in the UAE under licence number 602004.
This article is for information purposes only and does not constitute investment advice or a recommendation to purchase any specific investment product. Any views or opinions expressed are subject to change without notice. Before making an investment decision, you should seek advice from your HSBC relationship manager or another professional adviser taking into account your individual financial circumstances and objectives. HBME is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article.