Accountancy Resources
When it comes to creating a successful plan, it’s important to understand the difference between tactical vs strategic investment. This is an issue that can be confusing, but defining the differences between investment tactics and your overarching investment strategy is the real key to making money in the market.
Just about everyone who has ever paid to have some work done has heard the old saying, “You can have it done right, fast, or cheap. Pick two.” You can think of an investment strategy in a similar way.
Every strategy consists of three elements — risk, time, and yield — and it’s the interplay between those factors that lead you to a perfectly tailored investment strategy.
Risk
Every investment strategy comes with the risk of losing — or greatly diminishing — your principal investment. Whether they’re short-term or long-term, the level of risk that you’re willing to assume generally impacts the yield of the final investment. Typically, high-risk opportunities offer a high return, while low-risk investments have lackluster returns.
Time
Figuring out what sort of timeframe you’re working with will go a long way toward dictating which investment strategy is right for you. If you start investing when you’re young, it’s easy to choose investments that pay off steadily over the long term. Investors who need to make money fast will typically assume much higher risks.
Yield
The final piece of the investment strategy puzzle is yield. Obviously, we’d all like to make investments that pay off big, but in order to make a lot of money in the market, we all have to assume some level of risk. The safest investment strategies are the ones based on the lowest acceptable yield in order to fulfill your goals. High yield strategies carry with them much higher than average risks.
Putting It All Together
Just like the old saying that we touched on earlier, every investment strategy can be summed up in a simple way: “You can have high-yield, low-risk, or short-term investments. Pick two.” The choice that you make will ultimately be dictated by what you expect to gain from the market.
Investment tactics are the plans and steps that you must take in order to meet the goals you’ve laid out in your investment strategy. For instance, when setting up a retirement fund that won’t be touched for decades, the best course of action is often to tie yourself to mutual funds and other investments that are indexed to the market as a whole.
There is a whole range of investment tactics, and each one is appropriate for a different strategy. Often, you’ll be mixing and matching tactics in order to get the results that you’re looking for. Investorguide.com has laid out just a few common investment tactics below.
Fundamental Analysis
If you love nothing better than combing through profit and loss statements, following the latest earnings forecasts, and learning everything you can about the management styles of each principal member of a company’s senior management staff, fundamental analysis might be a very solid tactic for you to take. It tends to be most effective in the mid-term, either months or years down the line, as management has a chance to make internal changes that slowly begin to affect share prices.
Cyclical Investing
Nearly everyone is aware that the market moves in yearly cycles. For instance, the price of crude oil tends to spike in the summer months, while home heating oil is most expensive in the winter due to simple supply and demand. Identifying these trends and capitalizing on them can yield high returns with little risk, although it will often take many months to be able to put a plan like this into action.
Buy And Hold
This tactic has also been called “lazy investing” and the whole point is to find stocks that have performed well in the past and are likely to continue to grow. Buy and hold tactics are excellent for mid-term investors who are familiar with a handful of stocks that have a proven track record of performance. Once bought, the investment is held until the stock price reaches a set value where it is sold for a profit.
Growth Investing
If you’re an expert in a particular segment of the market, it’s possible that you have good insights into which companies are poised to make big money in the future. This high-risk, high-return strategy is often employed in short-term strategies in order to make big profits at the risk of big losses.
Unfortunately, there is no absolutely perfect blend of tactics and strategy for most people. Some long-term investors prefer to take part in mutual funds, or even hedge funds, in order to let investment gurus with proven track records take risks in their place. Whatever your individual investment strategy is, and whichever tactics you prefer to use in order to reach your goals, the best advice that anyone can give you is to stay open-minded and fluid, making changes to your tactics as the situation warrants and doing everything possible to keep your long-term strategy profitable.
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