An investment strategy is like a road map to building your investment portfolio. Just like each person has a different appetite for different foods, there is no one-size-fits-all investment strategy.
For instance, a plan that suits a 25-year-old may not work well for a 40-year-old. Age is one factor; there are few other factors such as risk tolerance, capital availability, needs, goals, etc. that influence your investment strategy.
Table of Contents
Best Investment Strategies for Retirement Planning
Let us explore some of the best investment strategies of 2021.
#1 Early Investing
Investing early on comes at a great advantage for first-time investors. There is no specific time to start investing; the best time is right now.
Early investments give you access to a very scarce resource that is priceless – Time.
The earlier you start investing, the more time you give your investments to grow. Time enables you to afford to take risks. More time means more mistakes, more learning, more knowledge, more experience.
Long-term investing means buying and holding an asset for more extended periods, such as 10 or 20 years.
What happens when you invest for the long term? Magic. Yes, the magic of compounding works on the investment, making it grow enormously.
Compounding means the profit earned will be added back to the principle allowing it to grow further.
Suppose you invest ₹10,000 in an asset for ten years at the rate of 10% annualized returns. It would have grown to a whooping ₹25,937 at the time of maturity.
#3 Alternative Investing
This strategy is now gaining momentum in our country after the pandemic struck in.
Alternative investing means investing in assets other than traditional stocks, bonds or money markets. These assets are non-correlated to the market swings and economic crashes. Meaning, the value of these assets are not influenced by events like pandemics, wars and other natural calamities.
There are many alternative investment strategies available in the market, including gold, real estate, cryptocurrencies, etc. These investments act as a hedge against a financial crisis.
Cryptocurrencies are becoming one of the most popular sources of alternative investments; even institutional investors are turning towards them as an efficient store of value for the future.
With many options to choose from, we tend to spend all our earnings – or in some cases, even more than what we earn.
It is essential to allocate some of your income towards investments, then towards emergency funds. After doing so, you can spend the rest.
“Don’t save what is left after spending; spend what is left after saving.”
– Warren Buffett
This strategy can be followed by anyone regardless of age, risk tolerance, or income capacity.
#5 Diversify and Rebalance
Diversification means not putting all your eggs in one basket !!
In other words, investing in various non-related asset classes. It is the basic strategy applied to mitigate portfolio risks.
Scenario #1: Let us say you had invested all your money only in stocks. After the pandemic, the value of your portfolio would have come crashing down, as the data suggest at this point.
Scenario #2: Suppose you distributed your investment well between stocks, gold, deposits, and cryptocurrencies. The returns from gold and cryptocurrencies would have minimized the risk of loss from stocks.
This is called minimizing risk by diversifying and investing in multiple assets to compensate for a single point of failure risks.
Diversification and rebalancing (i.e., changing the allocation percentage in your portfolio ) go hand in hand. It is essential to balance your portfolio from time to time with assets aligning with the current market trends.
#6. Growth Investing
It is an old and basic strategy for investing. Growth investing involves identifying and investing in assets that show the potential to grow substantially in the future. Capital appreciation is the primary goal of growth investors.
Patience is the key to this strategy’s success since the returns may be enormous only in the later stages of the maturity of investments.
However, there is a significant risk attached to growth investing. It suits investors who are risk-averse and are seeking to grow their wealth significantly.
#7. Income Investing
This style involves investing in assets that will earn you a regular periodical income as an alternative to the income earned from employment or business.
Though the returns will be comparatively lower than growth assets, income investments regularly provide a steady income stream. Read these best income investment strategies for an elaborate explanation.
Income investing is best for conservative investors looking to earn a nominal income regularly without high risk.
#8. Socially Responsible Investing
The current crisis has opened our eyes to the fact that profitability is not the only thing that matters. The sustainability and longevity of the industry also matter.
While this strategy does not focus on earning high profits, it leans towards investing in a sustainable environment.
You can customize your strategy in terms of what you care about in the environment.
For example, If you care about greenhouse gases generated from industrial use then you can revolve your investments around digital currencies that use cheaper electricity or renewable resources for its sustenance.
#9. Rupee Cost Averaging
It is an approach that requires you to invest a sum of money at regular intervals in the same asset that you think is the best one to invest in.
By automatically investing a fixed sum regularly, you can skip the need to figure out when is the best to invest. Also, it affects the number of units of assets invested in rather than the sum of invested capital.
In other words, rupee cost averages out the value of the units, thus lessening your exposure to market fluctuation risk.
It is best suited for investors who do not have the time to monitor the market closely but have enough conviction in an asset or assets they have chosen for themselves.
#10. The Universal Mantra – Invest only what you can afford
Investing what you can afford only is the golden rule of investing.
Even ants and other insects that collect food for the dry seasons first make sure they have enough for the present and store the excess for later.
We must also act similarly and invest only after taking care of essentials like food, shelter, and clothing to ensure that a loss from an investment would not disrupt your daily lifestyle.
Wrapping up, the best investment strategy is not always the one that fetches you a maximum profit.
While profit is an essential factor, you need to choose a plan that best suits your profile. Once you decide your strategy, you need to stick to it rather than jumping from one branch to another.
So pick your strategies to do well & happy investing !!
2. What is the way to select the best investment strategy?
Selecting the best investment strategy requires you to have a clear understanding of your risk tolerance, capital availability, needs and goals. Once you have all of this sorted, you can go on to decide which strategy suits you the best.
3. What is the safest investment with the highest return?
The returns on an investment are proportional to the risks involved.
The safest investment options include Fixed Deposits, Mutual Funds etc., but they aren’t the ones yielding the highest returns. Cryptocurrencies are the highest yielding instruments, but they aren’t the safest.
If you want to be secure and earn high returns the best way is to diversify your portfolio with a mix of different asset classes.
4.What is the best way for long term investment?
Long term investment lasts for 10 – 20 years. So, it’s best to have some kind of goal attached to the investment that keeps you working towards it
5. How do I invest wisely?
To invest wisely, you need to have a basic understanding of your goals, risk appetite and capital investment. Once you have that in place, you can explore all the investing mediums available to you and make the best choice.
It is also good to keep educating yourself on investments.
KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.