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What you need to know about investment strategies and how to pick one

What you need to know about investment strategies and how to pick one
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If you are new to investing, it can all seem a bit daunting. Thankfully, there is a wealth of resources right here at The Motley Fool and at The Motley Fool UK. But if you are interested in what investment strategy to go for, we’re here to break down the four big ones.

1. Growth investing

Growth sounds like a great idea! But to any beginner investor, it makes sense to understand how you can actually achieve growth in your investments.

A growth investment strategy means focusing on companies that are expanding rapidly and therefore offer strong growth potential. So it involves looking at companies that have a solid history of earnings growth, plus expanding revenues and profit margins.

These are typically in industries where stocks thrive. For example, Tesla has performed well as it is in the new dynamic industry of electric cars.

For growth investing to work, you need evidence of a widespread and robust appetite for that company’s services or products.

The main downside of this type of investment strategy is the lack of dividends. Companies in growth mode need all the capital they can get, which doesn’t leave much for dividend payments.

2. Value investing

A value investment strategy is for the bargain shoppers among us. This type of investor searches out companies that are undervalued.

The idea is to get stock at a discounted price and then make money from it.

However, the problem with this type of investing is that shares are often cheap for a reason. There is a high-risk element to this strategy, as there is no guarantee that your investments will rise. So it is best suited to those who play the long game.

3. Momentum investing

With a momentum investment strategy, you ride the wave. It is the definition of following the crowd, backing the ‘winners’ and steering clear of the ‘losers’.

As a momentum investor, you buy stocks that have already gone up, as you think they will continue to climb. It can be a very successful strategy, with some sectors or markets rising and rising for years.

But trends can change in the blink of an eye. This means that as a momentum investor you could leave yourself exposed to the full force of a market correction.

4. Income investing

Income investors like to have regular money paid out to them. An income investment strategy focuses on companies that tend to pay dividends regularly. These are typically large, very well-established firms that are no longer rapidly expanding.

Basically, this is a relatively low-risk strategy. It could provide you with a reliable income stream that comes with minimal risk. However, that does mean that you could be missing out on some of the big gains that you may get using other investment strategies.

How to start investing

If reading all of the above makes you want to dip your toe into the stock market pool, then take a look at our top picks for share dealing accounts. Depending on your level of experience, you should be able to find one to suit the investment strategy you decide to go for.

Are you overpaying in broker fees?

Share dealing fees are not always straightforward. Use our free broker cost calculator to easily compare broker fees and see which providers listed offer the best value. 

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