6 Different Investment Styles - What's Right for You?

There are many different ways to invest and strategies that you can use. If you’re not sure how you want to manage your investments and what to invest in, we’ve explored six different investments that you could adopt.

Why do you need an investment strategy?

Having a clear investment strategy should provide you with focus and direction, and can help alleviate the stress of making trading decisions. An investment strategy can inform what products to include in your portfolio and when to buy and sell. It should also keep you aligned with your investment goals. Investing will likely be more enjoyable and less stressful with a strategy in place, and could be the key to investing successfully.

6 Different Approaches to Investing

Here are six different ways you can approach investing and often you’ll find that your final investment style might be a mix of a few different styles.

Active vs. Passive

Active and passive investing are two opposing investment styles and whichever approach you take will likely underpin your entire investment strategy. Whether you decide on being an active or passive investor may come down to how much time you can dedicate to investing, how hands on you wish to be and your tolerance for risk.

Active Investing

An active investor’s goal is to try and beat the market and have their investments perform better than the relevant market index. With this in mind, active investors tend to keenly watch the market and make trades appropriately. However, taking this approach to investing usually requires a high level of confidence when making investment decisions, and would typically involve higher risk, which should be taken into account. That’s why some active investors choose to engage with a professional fund manager who will actively manage their investments on their behalf.

Passive Investing

Often seen as a low cost and low maintenance way to invest, passive investing tends to suit those who would rather take more of a ‘set and forget’ approach and have a lower risk tolerance when compared with active investors. For this reason, passive investors are often investing over long periods of time, adopting the buy and hold tactic. They tend to keep their eye on the prize and ignore short term setbacks and even sharp downturns in the market. This is the opposite of active investing which tends to suit those who are chasing shorter-term gains.

Related article: Active vs. Passive Investing: What’s the difference?

Other investment styles

Value investing

Value investing is a strategy utilised by famous investor Warren Buffett. These investors seek to maximise returns by finding stocks in the market that they consider to be undervalued. Value investors tend to be passive investors who follow a set of rules and principles that underpin the strategy, such as: invest in companies not stocks, buy and hold, don’t follow the crowd. But their key goal is to find companies trading below their intrinsic value, and are essentially being sold for cheap. Value investing requires a lot of research and careful decision making but the effort can be rewarding.

Growth investing

Growth investors typically look for established companies that are likely to grow within an emerging market, or emerging companies that are likely to have high growth in existing markets. The strategy of growth investing is similar to value investing as investors using these strategies will trawl through a company’s financial statements and deploy their favourite ratios. However, growth investors are assessing the future growth potential of a business, relying on a combination of both subjective and objective measures.

Income investing

As the name suggests, the goal of income investors is to create an income stream from their portfolio. Typically, income investors will look exclusively for dividend-paying stocks, and invest in fixed income securities (like bonds) and property.

Ethical investing

A relatively new investment style is ethical investing. There is a growing number of investors who don’t want to invest in assets that are damaging to the planet. Ethical investors tend to either positively screen for companies that are attempting to make a difference. For example, they may invest in companies related to renewable energy, healthcare and education. Or alternatively, they negatively screen out companies that don’t align with their ethics. These might be companies that are involved in weapons, tobacco, alcohol and gambling.

So, which investment style is right for you?

To figure out which approach might be right for you, you should consider your current circumstances, particularly how much you can comfortably invest. Also, take into account your investment goals, are you investing for additional income or looking to build a nest egg for retirement? Lastly, what is your tolerance for risk? If you invest in something particularly risky, will that keep you up at night? If so, that investment probably wasn’t right for you.

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