An investment strategy is a plan you develop as you go along on your journey to grow your wealth. It serves as a guide for how you’ll manage your investing.
There’s no blueprint strategy that all investors use. Your goals and financial circumstances are unique, so a good plan should reflect and account for that.
Your strategy is where you’ll record important information about your investments and their performance. It will guide any future decisions you make and keep track of your capital, goals and risk tolerance.
There are some important questions you need to answer before you begin investing. In the previous course, you thought about how much money you’ll need and what investing will cost you. Now you should be thinking about forming a strategy. Ask yourself these questions before starting:
- Why do you want to invest?
Investing involves taking risk. Stock markets have historically provided investors with greater returns than cash savings have, but your investments can fall in value as well as rise. Because of this, you need to carefully consider your reason for investing, and whether you can afford to take the risk and be prepared for all outcomes at the end of your journey
- By when will you need your money?
As well as knowing why you’re investing, you should think about how long you want to commit your money for and when you’ll need to cash it in. Unlike saving money towards something tangible such as a holiday or a deposit for a home, which most people aim to do in three years or less, investing requires a longer time commitment
- How much risk are you willing to take on?
Are you willing to put your money into high-risk investments with the hopes of high returns? Or would you prefer something more stable with less risk of losing your capital and profits? This is one of the most important things to think about before investing. We’ll discuss it later in this course
- How much time can you dedicate to managing your portfolio?
The economic landscape can change in a heartbeat due to social and political events. This means you have to regularly monitor your portfolio to ensure it’s on track to reaching your profit target. Thinking about how much time you have will help you decide whether you can manage your own portfolio or if you’ll need someone else to do it for you
Did you know?
You can build your own investment portfolio or you can delegate this task to a fund manager, financial advisor or investment firm. Some brokers allow you to invest in ready-made portfolios, such as our IG Smart Portfolios, where you’d simply choose one that aligns best with your goals.
In the next lessons, we’ll guide you through some more factors to consider to get you started on creating your strategy.
Lesson summary
- An investment strategy helps you prepare for your wealth-building journey
- It should be unique to your financial circumstances, goals and risk profile
- Just as the financial markets and economy change, your portfolio will need to be adjusted as well
- Your investment strategy needs careful consideration, including whether you can manage it yourself or need to employ a specialist
