Everyone has a slightly different approach to investing. How you handle your money is a personal decision, and there is nothing inherently wrong with that. Some investors like to buy and hold, while others like to take profits. Some like to be active, while others like to sit back and watch.
If you’re looking to invest money to make money, you need to understand the different types of investing styles. The four major styles are active and passive investing. An active investor is one who buys stocks, bonds, mutual funds, and other financial products and then actively follows and trades them, hoping to make a profit. Such a person can be compared to a baseball player; they are a highly skilled athlete who still needs other skilled players to win games. An active investor is a person who provides much of the talent but needs help from other players to succeed.
Here are the Different Types of Investing Styles
A passive investment strategy involves not buying and selling stocks more often than necessary. Most investors focus on earning high returns, but in today’s complex market environment, this requires the ability to pick winners and avoid losers. The best way to do that is to ignore the stock market and invest in index funds, which track the performance of certain broad market indexes. As a result, you don’t make day-to-day decisions about when to buy or sell, and you don’t need to worry about timing the market.
Active investing is just what it sounds like: investing that actively manages your portfolio. Some investors believe that active investing is the only real way to achieve reasonable returns, while others believe it’s a waste of time and money.
The strategy is growing in popularity and involves investing regularly in low-fee index funds, ETFs, or mutual funds that track the performance of large, well-known, or “blue chip” stocks like Apple, Facebook, and Microsoft. The strategy has many advantages, including low costs, tax efficiency, and diversification.
Growth stocks are stocks of companies that are growing and are likely to continue growing in the future. They represent a company that is growing faster than its industry. For example, if a company’s industry is growing at 10 percent per year and that company is growing at 20 percent per year, it is considered a growth stock.
Value investing is a style of stock picking that entails looking for undervalued companies and buying them, hoping that they will increase in price. It is a long-term investment strategy, typically executed over five or more years, and is a style of investing that focuses on long-term total return rather than on day-to-day fluctuations in the price of a security.
Market capitalization is an alternative to investing that does not require a large sum of money to get started. Capitalization investing lets you fund in the stock market for as little as $500. It is a way to make money by investing in a company’s assets instead of shares of the company’s stock. With this method, you invest in the company’s assets and get paid when the company’s stock price goes up, and vice versa.
It’s impossible to condense everything there is to know about investing into a few sentences, but the information shared here should get you started in your journey to becoming a better investor. People adopt various investing styles, including growth, value, and momentum. Though there is no right answer about whether growth or value investing is superior, the fact is that investing styles based on growth or value typically exhibit better short-term results, whereas styles based on momentum usually meet higher long-term expectations.