An effective investment and wealth management strategy is one that consistently delivers inflation-beating returns.
Therefore, designing a time-tested and functional investment strategy is crucial for your financial well-being.
Thankfully, this article takes you through the five best-performing wealth management strategies you may follow to accelerate capital growth in 2024. But before we delve deeper, it is good to analyze your investment objectives.
Investment strategies are of two types – active and passive. In an operational, active investment strategy, the investor actively monitors the investment, and in a passive strategy, they might not need to follow it regularly.
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Which Investment Horizon Is the Best: Long-Term or Short-Term?
Both long-term and short-term investments have their merits and demerits. Long-term family investments typically generate higher inflation-adjusted returns than short-term investments.
Moreover, you may have to pay a Short-Term Capital Gains tax when you withdraw your investments before three years or 36 months, which is higher than the Long-Term Capital Gains Tax. Hence, if you can afford to invest for the long term, it can be the best thing you can do for financial growth.
The Top 5 Investment Strategies in 2024
1. The Growth Investing Strategy
Growth investing is an active strategy that involves fundamental analysis of financial products like stocks. You need to analyze companies’ financial statements and evaluate metrics to spot companies with above-average growth potential.
Growth investing can be of two types – creating a portfolio of high-performing financial instruments or investing in a basket comprising high-value, high-growth stocks or ETFs. This investing strategy works best when you align it with your short and long-term financial objectives and risk tolerance level.
Investing in growth stocks is a sensible decision when the economy and capital markets are on an upswing. However, there is a risk of capital loss when the market behaves differently. Choosing professional investment managers can pose fewer risks to investors.
Therefore, growth investing is the best approach when you can invest time analyzing companies’ financial statements and have a long-term approach.
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2. The Active Trading Strategy
If you have a professional approach and can track the capital markets accurately, active trading may suit you the best. However, data shows that a little over 4% of traders see any success in active trading, and a dismal 1% make gravity-defying profits.
Active trading involves many strategies, of which technical analysis and fundamental analysis are the most popular.
- Technical analysts evaluate a stock’s price action and metrics like volume, strength, etc., to predict its future course.
- Fundamental analysts look at the company’s growth potential to achieve the same results as technical analysts.
Additionally, active trading can be classified into four types –
- Day Trading: Day trading is the most popular active trading strategy. Here, traders buy and sell or sell and buy (short-sell) on the same day and do not carry forward positions. Day trading is the riskiest of all wealth management strategies and is followed by mostly big traders and market makers.
- Position Trading: Position trading involves holding onto a stock until it reaches the target price. In this long-term strategy, traders could hold the stock for months or even years.
- Swing Trading: Swing traders ride the waves in an uptrend or downtrend to make profits. You typically need to employ technical analysis for this short-term strategy to work.
- Scalping: Scalpers profit from the difference in bid-ask spreads. This strategy involves entering and exiting positions as quickly as possible.
You may also use leverage to get additional mileage in active trading. But, try not to exceed the leverage amount to something you cannot afford to lose. If you are successful in active trading, it can generate better short-term profits than long-term investments.
3. The Value Investing Strategy
The value investing strategy is much like the Growth investing strategy, except for the fact that this strategy is passively managed. In this wealth management strategy, investors find one or more mutual funds or Exchange-Traded Funds (ETFs) and park their capital to gain money. It may also mean looking for bargain stocks that might be trading at a discount from their intrinsic value.
Although investing in value stocks or mutual funds that invest in value stocks is less stressful than active trading, it is not devoid of risks. For example, mutual funds charge an amount for managing your funds, which may pull down the net return on investment.
Moreover, since you cannot control the investment philosophy, profit or loss might also be beyond your control. Hence, before choosing this strategy, you must do the groundwork and invest the correct amount.
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4. The Dividend Growth Strategy
When companies make a profit and wish to share a part of that profit with the shareholders, it is known as a dividend. Some investors reinvest this amount, while others spend the amount.
In this active wealth management strategy, you buy and hold one or more stocks with a steady track record of distributing their surplus income as dividends, year after year. Dividend growth investors are a lot different from other investors since they do not spend time analyzing companies’ financials and technical charts. Instead, they pick stocks that pay dividends and invest in those companies.
5. The Buy-and-Hold Strategy
The buy-and-hold strategy is best suited for long-term investors who believe in the power of compounding. Legendary investors like Benjamin Graham, Warren Buffet, Peter Lynch, John Templeton, Jack Bogle, and others belong to this category.
Statistics show that inflation reduces our purchasing power by up to 3% every year. In addition, historical data shows that long-term investment helps you deal with short-term volatility better and generate steady returns over time. This strategy also means you do not trade frequently and save yourself from paying high brokerage fees. As such, your overall return on investment increases.
Buy-and-hold portfolios are often treated as the best lazy portfolios since the investor manages their wealth passively.
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Conclusion
In wealth management, slow and steady wins the race. And, when it comes to managing your wealth and growing it efficiently, the best strategy is one that minimizes losses and maximizes profits.
The five investment strategies mentioned in this article are quite popular among seasoned investors and act as a good step forward in multiplying your wealth.