Getting started as an investor might seem to be complicated, with so many different strategies to pursue. When it comes to choosing an investment strategy, the experts at Yieldstreet advise keeping two important concepts in mind. First, the primary goal should be to maximize returns on investments, while minimizing the risk wherever possible. The second concept to bear in mind is that a slow and steady approach typically delivers the best total results in the long run.
With that said, here are five investment strategies for new investors to pursue.
Think Long Term
Buying stocks with the thought to hold onto them for at least three to five years—or indefinitely—will typically net better overall returns than trading frequently. This, of course, assumes the investments are in solid companies that have proven to be successful over time. A good idea is to look for stocks that pay dividends and use those dividends to purchase more shares. This approach frees fledgling investors from worrying about the market every day and minimizes exposure to capital gains taxes.
Dollar Cost Averaging
Some investors buy when a stock is on the rise and sell when it starts to retreat. This is the exact opposite of what many experts say is the best strategy. With dollar cost averaging, investments are made at regular intervals, regardless of what the market is doing. This means some purchases will be made when prices are high and some will be made when prices are low. Over time, these peaks and valleys average out, while freeing investors of trying to time the market.
Investing for Income
This idea was alluded to above, with the idea of purchasing stocks that pay dividends. Cash payouts can be used for whatever purpose the investor prefers, including purchasing more shares. These income stocks afford investors the benefits of capital gains, while simultaneously delivering cash.
Diversification Through Indexing
Index funds provide the ability to diversify investment dollars over a large swath of the market. Two of the most popular are the S&P 500 and the NASDAQ Composite. Both of these contain many of the market’s highest-flying players, which positions new investors to benefit from their successes—particularly if they follow the buy-and-hold strategy as advocated above. Plus, there is no need to analyze these stocks; the funds’ managers have already done that work.
Diversification Through Alternatives
Alternative investments typically have low correlation to the market in general, so they hold the potential to shield an investment portfolio from market volatility. Alternative investments include real estate, art, collectibles and the like. Another advantage of this approach—choosing to invest in real estate, for example—is that it provides something tangible an investor can use while it gains value.
While getting started as an investor may seem to be a complicated undertaking, these five investment strategies for new investors can simplify the process. Moreover, they provide the potential for minimal risk coupled with the best gains possible.
