20 Best Investment Strategies 2024 – Portfolios

You might be looking for some potential investment Strategies? You may want to grow your wealth and perhaps achieve financial freedom and become a FIRE? We have gathered some interesting investment strategies for you. Whether you’re a beginner just starting or a hardcore pro, having a well-defined investment strategy is essential and thus we have provided plenty of backtested strategies for you.

We’ll also cover risk management, explore different investing approaches, including passive and active investing, and discuss various investment types and the choices you have available as a retail investor. So get ready to charge your investment portfolio with “proven” and backtested investment strategies.

Before we go the investment strategies, let’s look at some of the key principles of successful investing:

Table of contents:

Key Successful Investment Principles: Explanation of 6 principles

The first and most important principle for any investor is diversification:

Diversification: Spreading investments across different assets to reduce risk

Diversification is a key principle in successful investing strategies, whatever strategy you are using. It involves spreading your investments across a wide range of assets, such as stocks, bonds, real estate, and commodities. also, if you invest in stocks, you want to have different stocks from different industries.

The whole idea of diversification is to minimize the impact that any one investment can have on your overall portfolio. If one asset performs poorly, it might be offset by gains from other investments, assets, or stocks.

Let’s give you some obvious examples:

Investing solely in one company’s stock leaves you vulnerable to its performance and might expose your portfolio to adverse movements. However, by diversifying into multiple stocks across various industries and considering different investment choices, you reduce the risk associated with any single stock. This is where passive investment strategies such as mutual funds can be beneficial. We are strong believers in passive investing.
Investing in bonds might be a wise choice for diversifying your investment account, but bonds have underperformed to stocks massively over time, as we established in our article about the best asset classes historically. Bonds might provide stability and income generation, especially during economic downturns when stocks, which are part of other investing strategies, may be volatile. But the price you pay for this is most likely lower returns over time. But it also depends on your age: as you approach retirement you want to have some bonds to reduce overall risk.

Time horizon: Considering the length of time an investment will be held for optimal returns

Considering your time horizon is crucial for income investing and growth investing strategies. The time horizon refers to how long you, as an investor, plan to hold an investment before needing the funds or achieving a specific financial target, like becoming a FIRE. Different investments perform better over varying timeframes.

For instance:

If you’re saving for retirement several decades away, having a well-diversified investment portfolio with a long-term growth strategy is essential. Investing in equities seems like the best choice because it has generated the best return over longer time frames, although stocks can go sideways or even down over a decade.
On the other hand, if you’re saving for a short-term goal like buying a house within a few years, it’s wise to prioritize less volatile options like fixed-income securities or cash equivalents.

Risk tolerance: Assessing personal comfort levels with potential investment risks

Successful investors understand their risk tolerance and invest accordingly in the stock market. Unfortunately, the pain tolerance is a lot lower than most realize. Can you tolerate a 50% loss without panicking? The truth is, very few can. Thus, investing biases might fool the best of us.

Risk tolerance refers to an individual’s willingness, acceptance, and ability to handle fluctuations in their investment value without panicking or making impulsive decisions. A drawdown is a drop from a peak in the equity.

Consider these factors when judging your risk tolerance:

Evaluate whether potential losses from your investment strategy and risk investment strategies would significantly impact your financial stability in the stock market.
Can you handle a big drop in your equity? Emotional resilience is crucial when considering your investment strategy. No matter your investment strategy, you must try to determine how comfortable you are with market volatility and potential temporary downturns. however, very few know until you’re knee-deep in a drawdown. You just have to experience it.
What are your financial goals, and how many years do you have at your disposal? The more time you have, the more risk you can take. A higher stock allocation may be suitable for long-term growth goals, while lower-risk allocations provide stability for short-term needs. The time frame is extremely important.

Research and analysis: Conducting thorough research before making investment decisions

Any investing strategy requires research, even if you are a passive investor. Should you approach a passive or active investing strategy?

If you’re an active stock picker, you must understand the fundamentals of each stock pick before committing your hard-earned money. That said, most stocks end up underperforming the long-term averages, something that makes stock picking extremely difficult.

Here’s how you can conduct effective research:

Study the company or asset: Analyze its financial health, competitive advantages, industry trends, growth investing, investment strategy, stock picks, and future prospects.
Review the historical performance of stock picks: Examine past returns, volatility, and how the investment has performed during different economic cycles.

Regular review and adjustments: Monitoring investments and making necessary changes over time

Successful investors regularly review their investment strategy to ensure it aligns with their goals and market conditions. They make adjustments when necessary to optimize the performance of their stock portfolio.

Consider these practices for regular review:

Monitor stock performance: Track how each investment, including growth and value picks, is performing relative to benchmarks or expectations.
Rebalance investment strategy: Adjust your stock allocation periodically to maintain desired diversification ratios for growth and value.

Successful Investment Strategies for Beginners: Analysis of 5 strategies:

Let’s look at 5 specific investment strategies that are likely to be useful for retail traders:

Dollar-cost averaging

Dollar-cost averaging is a popular investment strategy for beginners that involves regularly investing a fixed amount in stock. If you don’t know what this is, please have a look at our primer on Dollar-cost averaging.

This approach allows investors to take advantage of market fluctuations, buying more shares when stock prices are low and fewer shares when prices are high. By consistently investing over time, beginners can avoid the stress of trying to time the stock market and benefit from the growth of compounding returns. This is such a simple concept and is probably what most investors should do instead of trying to time the market.

Index fund investing

For beginners looking for a simple yet effective investment strategy, index fund investing is worth considering. Index funds are low-cost investment vehicles that track specific market indexes, such as the S&P 500. An index fund simply replicates the index and is not trying to outsmart the market.

By investing in an index fund, beginners gain exposure to a wide range of stocks or bonds, achieving instant diversification without needing to select individual securities. This strategy minimizes risk while still offering returns comparable to the overall market performance. Index fund investing is a great option for retail investors.

Buy-and-hold strategy

The buy-and-hold strategy is particularly suitable for beginner investors who prefer a long-term approach and are willing to ride out short-term market volatility. If you invest in stocks, you should at least have a 10-year horizon.

Instead of buying and selling stocks based on short-term price movements, let’s call it trading, this strategy involves purchasing assets and holding onto them for extended periods. The goal is to benefit from long-term appreciation of stock value and compound interest while avoiding unnecessary transaction costs. You want to snowball and compound!

Asset allocation approach

Another successful investment strategy for beginners is the asset allocation approach, where you invest in different assets that preferably complement each other.

By diversifying across various types of investments such as stocks, bonds, real estate, gold, cash equivalents, etc. beginners can reduce their exposure to any single asset class’s risks.

Starting with mutual funds or ETFs

Beginners often find it beneficial to start their investment journey with mutual funds or exchange-traded funds (ETFs) that offer diversification and professional management. By investing in SPY, the ETF that tracks S&P 500, you automatically get a wide diversification in stocks.

These investment vehicles provide growth and value, making them ideal for those who are new to investing. Beginners who try to pick stocks are very likely to get their head handed to them on a silver plate.

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets, while ETFs trade on stock exchanges like individual stocks. Both options provide beginners with exposure to various markets and asset classes without requiring extensive knowledge of any investing approach.

Successful Long-Term Investing Strategies that Work: Guidance on 10 strategies

Let’s look at some specific investing strategies that are pretty common:

Value investing approach

One of the most successful investment strategies is value investing. This approach involves identifying undervalued stocks with strong fundamentals. You try to pick undervalued stocks based on certain value multiples, such as PE, PB, etc. Value stocks have beaten growth stocks over the last century, but over periods of ten years the results vary.

These stocks have the potential for significant growth in the long run as the market recognizes their true worth.

Dividend investing strategy

Another effective strategy for long-term investment plans is dividend investing. This approach focuses on stocks that offer both growth and value by paying regular dividends, providing a consistent income stream for investors.

Dividend-paying companies, known for their stability and maturity, are suitable for investors looking for growth and value opportunities. By reinvesting these dividends, investors can benefit from compounding returns over time, but you face a headwind in the form of taxation of dividends.

Sector rotation method

The sector rotation method involves shifting investments between growth, stock, and value sectors based on their performance cycles. For an example, please have a look at our Value Vs. Growth Trading Strategy.

Different sectors perform well at different times due to economic conditions or industry-specific factors. By actively monitoring and adjusting investments accordingly, investors can take advantage of growth, stock, and value sector-specific opportunities while minimizing risks associated with underperforming sectors.

Growth investing strategy

For those looking for higher returns and value, growth investing is a popular strategy. This approach involves selecting stocks with high growth potential and value. These companies typically reinvest their profits back into the business to fuel expansion and innovation, creating long-term value.

While this strategy carries more risk than others, volatility is higher than for value stocks, it can lead to substantial gains over the long term if successful in generating value.

Income-focused real estate investing

Real estate can also be an excellent long-term investment option for stock growth, especially for generating rental income. Investors can purchase properties and earn regular cash flow through rental payments from tenants. Over time, as property values appreciate, investors may also benefit from capital appreciation when selling the properties.

Real estate requires management, and it’s not fun when the tenant calls you on a Sunday morning telling you that a pipe has burst and water is flowing.

Should you invest in stocks or real estate? we made a practical comparison in that clickable link.

Bond laddering technique

Investors seeking stability often turn to bond laddering as a part of their long-term investment plan. This technique involves building a portfolio of bonds with staggered maturity dates. By diversifying bond holdings across different maturities, investors can manage interest rate risk and ensure a steady stream of income as bonds mature and are reinvested.

Bond laddering provides stability in an investment portfolio, complementing the potential growth and value offered by stocks.

Passive index fund strategy

Passive index funds offer a low-cost and efficient investment strategy for achieving long-term growth. These funds aim to replicate the performance of a specific market index, such as the S&P 500. By investing in a diversified portfolio of stocks that make up the index, investors can benefit from broad market exposure without the need for active stock selection.

We believe that beginners should invest passively and diversify into a few other assets for diversification purposes.

Contrarian investing approach

Contrarian investing and trading involves going against the stock market crowd and buying assets that are currently out of favor with the market.

This strategy requires independent thinking and a long-term perspective for growth. By identifying opportunities where market sentiment is overly negative, contrarian investors can potentially capitalize on undervalued assets that may experience a turnaround in the future.

This is kind of a mean reverting strategy. Most things revert to the mean, and the stock market has worked like this over the last 40 years.

Socially responsible investing (SRI)

For individuals who want their investments to align with their personal values and ethics, socially responsible investing (SRI) is an ideal strategy for stock growth. SRI focuses on investing in companies that prioritize environmental sustainability, social justice, or ethical business practices.

This approach allows investors to support causes they care about while still expecting reasonable returns on their stock investments.

International diversification

Expanding stock investments to include international markets is an effective way to increase diversification and potentially enhance returns over the long term.

What is the optimal international diversification? Historically, about 50% diversification to international stocks has been optimal.

We stop there, and end the article with a glossary. Below the glossary you find plenty of specific and backtested investment strategies.

Investment strategies Glossary

Asset Allocation: The process of spreading investments across various asset classes like stocks, bonds, and cash to manage risk and achieve specific financial goals.
Diversification: A strategy that involves investing in a variety of assets to reduce risk by not putting all your eggs in one basket.
Portfolio: A collection of investments, such as stocks, bonds, and other assets, held by an individual or organization.
Risk Tolerance: The degree of risk an investor is comfortable with and willing to accept in their investment portfolio.
Return on Investment (ROI): The percentage gain or loss on an investment relative to its initial cost.
Bull Market: A market characterized by rising prices and investor optimism.
Bear Market: A market characterized by falling prices and pessimism among investors.
Buy and Hold Strategy: An investment approach where investors buy assets and hold them for the long term, regardless of short-term market fluctuations.
Market Timing: Attempting to predict market movements and make investment decisions based on these predictions.
Value Investing: A strategy that involves buying undervalued stocks or assets with the expectation that they will increase in value over time.
Growth Investing: A strategy that focuses on buying stocks of companies with strong growth potential, even if they have high valuations.
Income Investing: A strategy that seeks to generate regular income from investments, often through dividend-paying stocks or bonds.
Passive Investing: An approach that involves tracking a market index or benchmark, typically through index funds or ETFs, rather than actively picking individual securities.
Active Investing: A strategy that involves frequent trading and active management of a portfolio to try to outperform the market.
Hedging: A risk management strategy that involves using financial instruments to offset potential losses in other investments.
Liquidity: The ease with which an asset can be bought or sold in the market without significantly affecting its price.
Margin Trading: Borrowing money to buy securities, increasing both potential gains and losses.
Options Trading: A strategy that involves trading options contracts, giving the buyer the right but not the obligation to buy or sell an asset at a specified price.
Short Selling: A strategy where investors sell borrowed securities with the expectation that they can buy them back at a lower price.
Asset Class: A category of investments with similar characteristics, such as stocks, bonds, real estate, or commodities.
Alpha: A measure of an investment’s performance relative to its benchmark index, indicating how much value a fund manager adds or subtracts.
Beta: A measure of an investment’s sensitivity to market movements, indicating its risk compared to the overall market.
Volatility: The degree of price fluctuation of an investment over time, often used as a measure of risk.
Correlation: A statistical measure of how two or more assets move in relation to each other.
Sharpe Ratio: A measure of an investment’s risk-adjusted return, helping investors assess the return they receive for the level of risk taken.
Capital Preservation: A strategy focused on protecting the initial investment rather than seeking significant gains.
Dividend Reinvestment Plan (DRIP): A program that automatically reinvests dividends back into the same security, increasing the number of shares held.
Systematic Risk: Market-wide risks that cannot be eliminated through diversification, such as economic downturns or geopolitical events.
Unsystematic Risk: Risks specific to a particular company or industry that can be reduced through diversification.
Market Capitalization: The total market value of a publicly traded company’s outstanding shares, used to categorize stocks as large-cap, mid-cap, or small-cap.
P/E Ratio (Price-to-Earnings Ratio): A valuation metric that compares a company’s stock price to its earnings per share, helping investors assess its relative value.
Cyclical Stocks: Stocks of companies whose performance is closely tied to economic cycles.
Defensive Stocks: Stocks of companies that tend to perform well in economic downturns due to stable demand for their products or services.
Technical Analysis: A method of analyzing securities by examining historical price and volume data to make future predictions.
Fundamental Analysis: An approach to evaluating investments by analyzing financial statements, industry trends, and economic conditions.
Earnings Per Share (EPS): A company’s net profit divided by the number of outstanding shares, indicating its profitability.
Yield: The income generated from an investment, often expressed as a percentage of the investment’s value.
Tax Efficiency: A strategy to minimize the tax impact on investment returns through tax-efficient investment choices.
Long-Term Investing: An approach that focuses on holding investments for an extended period, often years or decades.
Market Order: An order to buy or sell a security at the current market price, executed as soon as possible.

20 Top Investment strategies (portfolios)

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FAQ:

Can you explain the concept of passive vs. active investing?

Passive investing involves a hands-off approach, typically through index funds, while active investing requires more frequent buying and selling of assets. The choice depends on your risk tolerance and investment goals. For the great majority of investors, a passive approach is the best – by far.

What are some successful investment strategies for beginners?

Beginners can explore strategies like dollar-cost averaging, index fund investing, and buy-and-hold. For a simple yet effective approach, consider investing in index funds. Diversify your investments across different asset classes based on your risk tolerance and financial goals.

How frequently should investors review their portfolios for optimal performance?

If you are a passive investor, the best is probably to NEVER review the portfolio. Women are better investors than men, and that is probably because they are not trying to be smart. They buy some mutual funds, and forget about it.

How much money do I need to start investing?

The amount required to start investing in stocks varies depending on individual circumstances. Some stock platforms allow you to invest with as little as $100 or even less. You can invest monthly into a mutual fund for 100, or even less.

Is it necessary to hire a financial advisor for successful investing?

While hiring a financial advisor is not mandatory, their expertise in stock can provide valuable guidance if you are an active investor. If you are a passive investor, they might not be useful at all.

What are some common mistakes to avoid in investing?

Some common mistakes to avoid include emotional decision-making, chasing short-term gains, and lack of diversification.

How long should I hold onto my investments?

Long-term investing typically involves holding assets for several years or even decades. the sooner you start investing, the better! Time works for you in the stock market.

Can I invest while managing debt?

It is generally advisable to prioritize paying off high-interest debts before investing. However, it may be possible to strike a balance by simultaneously managing debt and making strategic investments.