Investment Strategy: The Heart Of All Investment Decisions
The personal investment strategy is based on the investor profile. It shows which mix of investments best suits the corresponding profile and which investments should make up the portfolio. For example, an investment strategy focused on growth will include more stocks than an investment strategy based primarily on safety.
This is where the risk-return ratio comes into play: it states how much risk an investor can or must take in order to be able to achieve a certain return. Important: There is no high return without risk. So if you want security and returns, you have to make compromises on one point.
Nothing happens without diversification: Why more is more
The word “diversification” will come up over and over again for all investors. After all, it is also particularly important for a successful investment: Those who diversify their own portfolio spread and minimize the risk. Diversification means nothing more than distributing the money invested across as many different investment instruments, investment themes, regions, currencies, sectors, and countries as possible. Because if an entire region falls into recession, an industry crashes, or a currency collapses, all the money isn’t lost. Greater diversification also means more security.
You can read more about investment strategies on Magnate Invest Premium Bonds Blog. They have a huge content about investment, stocks, bonds, and portfolio diversification.
What do price fluctuations mean? Volatility simply explained
Another term that is particularly important for investors is “volatility”. Put simply, it measures how much security or index fluctuates around its own mean. A security that is very volatile fluctuates particularly strongly – and can therefore be worth very much and very little within a very short time. This gives anyone who wants to speculate in the stock market opportunities to make money – but also to lose money.
For investors who prefer safer investments and invest more conservatively, less volatile securities or indices are usually more suitable – or a mix that balances out the volatility somewhat. At the same time, the investment horizon also plays a role: in the long term, short-term price fluctuations are no longer relevant. So if you invest with a long investment horizon, you can choose more volatile investments.
Older investors need to know their investment strategy
Your own investment strategy should generally be reviewed regularly. Especially when your own life situation changes – for example, when you are about to buy a house, plan to emigrate, or retire is in sight. Investors over 55 should therefore check their current investment strategy with their advisor in good time and adapt it so that it also suits the new phase of life. For example, if you previously invested with the goal of providing for retirement, these goals can be adjusted somewhat after retirement. After all, it is no longer a question of building up one’s own wealth, but of preserving and consuming it.
Many retirees supplement their pension with a monthly allowance from their own assets. Accordingly, this part of the assets can no longer be invested in the long term but must be liquid. The remaining part of the assets can in turn be invested until this part is also consumed. Also relevant: The decision on the payment of the pension fund assets: should it be a monthly pension or a one-time capital withdrawal? Those who opt for the latter should also consider how the capital should be invested – and for what purpose.
Sustainability also when investing – that’s possible!
A sustainable lifestyle does not have to start with organic tomatoes and end with investments. There are now many ways to invest your own money sustainably. For example, there are sustainable investments in funds and ETFs. There are the so-called ESG criteria for this: companies that meet these criteria have a positive impact on our environment and our society (social) and are committed to responsible corporate management (governance). So anyone who wants to invest sustainably can do so relatively easily by investing in investments from companies that meet these ESG criteria.
Attention, fees! It costs money to invest
Who invests pays high fees that eat up returns? That’s not true. Of course, investments also require fees. Investors need a so-called custody account for their investments. This is where the money is parked, with which securities can then be bought. Banks and online platforms usually charge a relatively small deposit fee for this.
Which fees are then added depends on which investments are made? Anyone who buys a fund, for example, pays a one-off issuing commission and regular (e.g. annually) fees for the administration and management of the fund (Total Expense Ratio – TER). If you keep buying and selling shares, you pay transaction costs with every trade.