Weather New York, NY +34°F

Misc

A Short Guide To Popular Investment Styles

Close
December 4
11:51 AM 2018

A Short Guide To Popular Investment Styles

Investing is an important step in growing one's wealth, but it's not without its complexities. Many first-time investors find themselves confused and even overwhelmed by the many intricacies involved in investing, but, as with most complex systems, it just takes a little time to understand.

There is no one-size-fits all approach to investing (and if there is, you probably want no part of it), but instead a number of different styles, each with their own risks and rewards, their own pros and cons. Whether you are just getting started investing, or looking to brush up on your investment knowledge, it's a good idea to get professional help with your investments from a wealth manager, who can consider your personal situation and risk tolerance to develop a strategy.

Consider this article a starting point, therefore: a short guide to get you thinking about a few of the different styles of investment.

Growth

This style is focused on appreciation, on investing in fast growing companies expected to continue growing at above average rates. The idea is that growth investors can reinvest and the companies will continue to grow, though growth stocks often have high valuations.

Value

Value investing emphasizes companies that undervalued yet strong. The idea here is to find a low price-earnings ratio - the ratio of the stock price to the company's per share earnings - in the hopes of yielding higher dividends.

Active

This style of investing sees the investor actively participating in the market, carefully stock picking to seek larger returns. Active investing is flexible enough that an investor or portfolio manager can use a range of strategies, but because of the effort involved, actively managed funds tend to come with higher expenses.

Passive

Passive investing doesn't look to outperform the market, but rather mirror it in the form of broad market indexes. If the market is doing well, the investment is doing well; if the market isn't, the investment isn't. This is typically a good long-term strategy, and, since it requires little effort, is less expensive.

Small Cap & Large Cap

Market capitalization - or "cap" for short - is a way of expressing the value of a company. That said, small cap investing involves prioritizing smaller market caps (usually small companies, but not always), and large cap investing involves targeting bigger market caps. Small cap companies are said to hold greater potential for growth, though they're riskier; large cap companies, meanwhile, may involve less risk, but investors can typically expect lower returns.

Ultimately, the style of investing that you choose depends on your time horizon, risk aversion and personal philosophies, among other things. Working with a quality wealth manager to find the right investment style for you is of crucial importance here. They can offer deeper insights and more nuanced information than you're likely to find in an internet article.

This is a much-discussed topic, with smart voices making cases for each of these styles, and understanding the differences - understanding the merits and drawbacks of each style - can help you make informed investment choices.

© 2018 VCPOST, All rights reserved. Do not reproduce without permission.
Share

Comments

Join the Conversation

Subscribe to VCpost newsletter

Sign up for our Deals of the Day newsletter.
We will not spam you!

Real Time Analytics