Investment (investing) strategy – often discussed by both amateur and professional investors, but in fact very rarely encountered. Amateurs usually imagine that they has an investment strategy only after they have already talked about it a little, and professionals usually turns an investment strategy into an administrative document, which makes the solving of problems even more complicated, rather than helping to solve them.
The investment strategy can be oral and written, and it would depend on specific investor which one the better. If a person who is investing according to strategy often forgets his owns rules or that person just do not have enough will to follow investment those rules, then it would be the best way to have a written investment strategy as a document.
The investment strategies must answer these following questions:
- What is investing period?
- What will be the risk level of investment portfolio?
- What investment asset classes will be included in investment portfolio?
- What will be the investment allocation of asset classes?
- What will be the criteria of exact investment picking?
- When, why and how one investment will be replaced by another?
- What reaction will be made to all possible market conditions (for example, if investment market will drop 50% down)?
- What can be the limits or restrictions for investing in some regions or investments?
- What investing tactic will be used?
- What should be the speed of decision realization in the portfolio (that can make additional costs)?
It may seem that the strategy is not a necessary thing, because there is always better to deal with emerging issues quickly, when all the circumstances are seen. However, acting quickly is largely based on emotions which are easy to run over in hard times. Decisions based on emotions can make very large damage for investing process. And if you will make tactical decisions that would not comply with investment strategy, then chances to make mistakes are very hig. That is generally known as the human factor.
And if the investment strategy is written, it is more probable that you will comply with your own described rules for investing and react more rationally during difficult market turmoil.
A complete investment strategy must include all of the above mentioned issues, and you have to know already from the beginning: how you will invest now (beginning of the investing) or after longer period, and what changes should be made during investing process.
What others say on Strategies:
- Investment Strategy, Guide to Investment Strategy | Economy Watch
- William Baldwin - Investment Strategies - Forbes
- Investing Strategies and Styles
- Investment strategy - Wikipedia, the free encyclopedia