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5 Investment Strategies for Maximising Returns On The ASX

ASR Team

Self-directed investors have relied on Australian Stock Report for over 20 years to provide them with comments on the Australian stock market and useful insights. We provide Australian investors with market news and research to make decisions that would help manage their savings, build a sustainable income, and potentially achieve capital growth.

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What Is An Investment Strategy?

An investment strategy serves as a guiding framework for investors, helping them make informed decisions that align with their financial goals, risk appetite, personal circumstances and long-term capital growth needs.

Use these investment tips to help you select the right investment portfolio, putting you on the path for success in your investment endeavours.

We discuss 5 common investing strategies that cater to those who wish to start investing, or the average investor looking to employ different investment strategies within their investing plans.

How Do I Decide On An Investment Strategy?

Assessing your risk tolerance and financial situation is essential in determining your comfort zone for taking risks and your future goals. Ask yourself, how much risk can I afford to take?

Once these factors are carefully reviewed, you can choose the investment strategy that aligns best with your circumstances.

Picking an investing newsletter in Australia is a good place to start, allowing you to stay informed and better weigh up your options. 

Popular Investment Strategies

      1.  Dividend Investing (aka Income Investing)

What is Dividend or Income Investing?

A dividend is a payment made to shareholders from a company's net profits as a reward for their investment.

As such, investing for income is a great passive investment strategy focused on purchasing dividend-paying stocks, or interest paying assets such as mutual funds, with the aim of generating a consistent stream of cash income. 

Pros & Cons of Dividend Investing?

Pros

      • Offers a consistent form of passive, regular income 
      • Insulation from stock market volatility, as dividends from established companies tend to be relatively stable 

Cons

      • Dividends are not guaranteed and are subject to the company's discretion, and they may choose to discontinue or reduce dividends at any time
      • Dividend stocks are victims of double taxation - the company is taxed on its earnings, and investors are taxed again when they receive dividends

Who is Dividend & Income Investing for?

Due to the relative stability of dividend investments, this strategy is suited towards investors with a low risk tolerance who would like to receive a steady income, such as retirees or older people. 

      1. Value Investing

What is Value Investing?

Value investing is an investment strategy that focuses on the selection of undervalued stocks that are overlooked by investors and the market.

Investors employ various forms of technical analysis using information such as financial statements, and aim to ‘buy low and sell high’ by identifying value stocks.

Pros & Cons of Value Investing?

Pros

      • Potential for high returns in the long term - if you pick the right horse, incredible gains can be generated
      • Generally purchased with minimised investment risk

Cons

      • Long waiting periods that yield low returns requiring a high level of patience and commitment
      • Demands extensive research and continuous learning to identify undervalued assets and make informed investment decisions

Who is Value Investing for?

Value investing is best suited to investors who are willing to hold onto their securities for an extended period and open to long-term investment strategies.

Investing in undervalued companies may require patience, as it can take years or even longer for their businesses to experience significant growth.

      1. Growth Investing

What is Growth Investing?

Growth investing is an investment approach that uses fundamental analysis which aims to increase an investor's capital by investing in stocks of companies with strong potential for future performance, particularly in rapidly expanding sectors.

Pros & Cons of Growth Investing

Pros

      • Growth stocks offer the potential for significant returns, particularly when companies demonstrate consistent and rapid growth
      • Investors can benefit from capital appreciation as the company's stock price rises

Cons

      • Typically more volatile and carry higher risk due to the uncertainty surrounding their growth potential
      • Investors should be cautious of valuation concerns with growth stocks, as they may be priced at a premium, making it crucial to evaluate whether the stock's valuation aligns with the company's growth potential

Who is Growth Investing for?

Growth funds are typically characterised by high risk and high reward, making them more suitable for long-term investors with a higher tolerance for risk.

Investors in growth funds should carefully evaluate their investment goals and financial situation before making investment decisions.

      1. Dollar-Cost-Averaging (DCA)

What is Dollar-Cost-Averaging (DCA)?

Dollar cost averaging is an investing strategy that involves regularly investing a fixed amount of money over time, regardless of market conditions, aiming to reduce the impact of market volatility on the overall investment. 

Pros & Cons of Dollar-Cost-Averaging

Pros

      • Can help mitigate the risk of investing a large sum at an unfavourable market price by spreading out investments over time
      • Provides the opportunity to potentially lower the average cost per share over time, as investments are made at different price points

Cons

      • Does not guarantee profits or protect against losses as it is subject to market fluctuations and the performance of the underlying investments
      • May result in missed opportunities to invest a lump sum during market downturns, potentially limiting potential gains

Who is Dollar-Cost-Averaging for?

Dollar-cost-averaging is a great strategy for those who do not have large amounts of money to invest at once, allowing them to invest modest levels of cash into the market on a scheduled, regular basis that allows for their budget to catch up. 

      1. Impact Investing

What is Impact Investing?

Impact investing is an investing strategy that seeks both financial returns and positive social or environmental impacts.

It involves investing in companies, organisations, or funds that align with specific ethical goals while also expecting a financial return.

Pros & Cons of Impact Investing?

Pros

      • You’re money is going where you want it to and encouraging ethical behaviour among big business
      • Impact investments have the potential to generate competitive financial returns in a world where sustainability is increasingly at the forefront of our minds

Cons

      • The risk of greenwashing arises when companies falsely claim to be socially responsible, using marketing tactics to deceive investors and create the illusion of ethical practises
      • May present a challenge in terms of limited investment opportunities, which can result in reduced diversification and liquidity compared to traditional investments

Who is Impact Investing for?

Impact investing caters to a diverse range of individuals and institutions who desire to harmonise their investment strategies with their values, seeking a positive social and environmental impact in addition to financial returns.

What Is The Best Investment Strategy?

There is no magical ‘one size fits all’ investment strategy that is sure to gain you high returns.

The optimal investment strategy for each individual varies based on a multitude of factors, including risk tolerance, long-term and short-term financial objectives, and other personal considerations.

You should go with the investment strategies that you think will best help you achieve your goals. 

What Are The Golden Rules Of Investing?

Consider these 3 key investment tips and investing strategies that everyone should follow:

      1. Diversify: diversification plays a vital role in investing as it helps minimise risk by distributing investments across various assets. This strategy reduces the impact that the performance of any single investment can have on the overall portfolio.
      2. The buy and hold: promotes a long-term outlook, mitigating the impact of short-term market fluctuations and allowing for potential compounding returns.
      3. Regularly review your plan: by reviewing your plan, you can assess its effectiveness, make necessary adjustments, and revisit your investment objectives or address any changing market conditions that may impact your investments. 

How Do I Setup An Investment Strategy?

Successful investment strategies are developed by considering your long-term objectives, such as the desired savings amount, timeline, and intended outcomes.

Once your financial goals are established, you can set specific targets for returns and savings, subsequently use fundamental analysis to start identifying assets that align with your plan. 

How Do I Start Buying Stock As A Beginner?

Once you have established an investment plan and found your ideal investment strategies you can start by creating your brokerage account. While there are full-service brokers available, you have the option to independently place your buy and sell orders using brokerage services.

It's up to you whether you use a brokerage firm, financial planner or online brokers in this process.

Then, select a stock to purchase, curate your own portfolio by carefully choosing suitable and diversified investment products with varied asset allocation as a risk management strategy, and begin investing.

 

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All information in this article is of general nature only; it is not intended or to be construed as an offer, solicitation or recommendation for any financial product and does not take into account your financial situation, objectives or needs. Before acting on the information herein you should consider whether it is appropriate for you in light of your personal circumstances. Where applicable, you should obtain and consider a Product Disclosure Statement, Prospectus or other relevant disclosure material and seek professional investment advice prior to making any decision to acquire or dispose of a financial product.  Investing in financial markets and instruments involves risks, including loss of some or all capital. The payment of income and the return of capital are not guaranteed. Past performance is not an indicator of future performance. Whilst the information presented herein is believed to be reliable and obtained from trusted sources, ASR does not make any representations as to its accuracy or completeness.