Investment Strategies

Independent investors are always looking for winning investment strategies. Unfortunately there is no magic bullet, and the path you take depends on what you're looking for. People invest hoping to grow wealth, protect their assets, or to build a fixed income stream. First off, if you're looking to get rich quick then investing really isn't for you. Successful investing is about building wealth over a long period of time. A good rule of thumb is to think in terms of three to five year increments, with even longer time periods on the horizon. Avoid the temptation of hoping to get rich of a single trade or over a period of a few days or weeks. That's gambling, and the random nature of stock market fluctuations could mean you're just as likely to lose money as to gain it trying to game the stock market.

Now that we've separated the gamblers from the investors, let's look at some investment strategies that might work for you.

1. Determine Your Financial GoalsThe first step is to sit down and write out what you need to accomplish with your money. Is it rapid growth? Maybe you're 50 and haven't been saving for retirement. If so putting your money in the bank probably isn't going to help you much-you need more rapid growth than that. Or maybe you're 35 and wondering how you're going to pay for your kids college down the road. Or you could be nearing retirement and more interested in protecting the cash you have, while building a fixed income stream. Who you are and where you're at in life has a big impact on what investment strategies you'll want to use. So begin by setting some financial goals.

2. Set a Date to meet your GoalsOnce you've figured out what you need to do, set a reasonable date to meet the goal. If you're looking to rapidly grow your portfolio, that date might be five or ten years in the future. The point is be specific and plan.

3. Build a Portfolio Based On Your GoalsEveryone needs to have a diversified portfolio, but your asset allocation will vary depending on what your goals are. If you need aggressive growth, you might put some money into the technology sector, for example, and put a certain percentage of your funds in emerging markets. If volatility gives you nightmares and you have a longer time period with which to grow your money, you might put more into large indexes like the S & P 500. Older investors might be more interested in protecting their money and so put a large percentage into bonds and cash investments. Depending on your goals, build a portfolio to match it. An easy way to do that is to set up an investment plan based on Bob Brinker's model portfolios. You can find out more by signing up for his market timer newsletter market timer newsletter.

4. Ignore Day to Day FluctuationsThe news media bombards us with news about momentary fluctuations in the stock market. Day-to-day ups and downs don't matter for investors, who are in the market for the long term.

5. Sell when an investment has done what you ask of itAn important part of meeting your goals, once you have designed an asset allocation to help you get there-is to maintain that asset allocation, and take advantage of any profits. Let's say you had a simple portfolio with 60% of your funds in stocks and 40% of your funds in bonds. If one of the stocks takes off so that your asset allocation changed to 70% of your money in stocks and 30% of your money in bonds, you should sell the stocks that increased to bring your asset allocation back in line to 60-40. You could either take the cash out or redistribute it to maintain your 60-40 balance. That's because the asset allocation you chose is to help you meet a specific goal, and you should stick to that over time.

6. Buy low and sell highHow often do you hear about investors panicking and selling off stocks? Then prices drop and drop. These are actually buying opportunities in many cases. When you hear about stock market drops, see these as opportunities to get in the market rather than running off the cliff with the rest of the lemmings. Look at the historical record. A crash is going to be followed by lots of growth. And when it grows enough to meet your goals, don't be afraid to sell your stocks and realize your gains.

7. Avoid Get Rich Quick SchemesTrading penny stocks doesn't fall in line with investment strategies. Investment is not about gambling, its about putting money in companies you believe have value and that will grow over time. You probably wish you had invested in Wal-Mart in 1983, but unless you have a crystal ball, its impossible to guess who the "next Wal-mart" is.

8. Diversify, diversify, diversifyThe core of any set of investment strategies that will mitigate your risk is to keep a diversified portfolio. Don't dump all your money in Microsoft hoping to be rich 20 years from now-anything can happen-look at how GM went from being an American industrial icon to bankruptcy.

9. Choose your level of diversity carefullyIf you want to invest in individual stocks, a core part of your investment strategies will be maintaining the right level of diversity. That means holding at least 20 different stocks in your portfolio. Unless you're Warren Buffet, the best way to have a diversified portfolio is through exchange traded funds or mutual funds rather than individual stocks.

10. Stocks for Growth, Bonds for SecurityFinally, the general rule of thumb is to invest more in stocks if you're seeking growth of capital, and more in bonds if you want to protect your money. This is central among your investment strategies, but doing it right can be tricky if you're a new investor. If you're going it alone visit a professional website like Vanguard and study how their mutual funds designed for different goals do their allocation.

Have your own investment strategies? Share them with us below.

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