Typically, experts recommend a well-diversified investment portfolio that bundles safe and risky securities together. In the long run, such a portfolio can generate growth and better hedge against market and economic volatility.

  • When it comes to your investment strategy, building your portfolio the right way is half the battle. Focus on things you can control, like asset allocation and costs.
  • For most investors, once your portfolio is set, there are only a few things you need to do to stay on track.

There are a handful of time-tested investment strategies that tend to outperform over time.

Just as importantly, being able to assess market conditions and valuations, and choose the right investment strategy at the right time, lets you maximize your wealth’s growth potential.

Rather than trying to outperform, they merely match the market, but they do so at such low costs that they end up outperforming most actively-managed investment funds that charge high fees for lackluster performance.

1. Play on Value

Price is what you pay for a stock; value is what you get, said Warren Buffet. An important strategy to follow is understanding the difference between the price and value of a stock. Understand the market inefficiencies that lead to a price-value gap and bet on companies with a considerable difference in the two.

2. Read the Books of Accounts 

Start with reading the profit and loss accounts, balance sheets and cash flows of the companies you wish to invest in. While these are useful, everyone has access to this information. Understanding the books of accounts and how a company’s accounting works can give you an edge while investing. For instance, don’t focus on earnings per share. Instead, look at return in equity. Compute the different ratios that tell you whether a company is strong, weak, profitable and then make your investing decision.

3. IT is a Strong Sector 

IT companies are making a comeback. Now can be considered the second golden era of information technologies. They are going to the fountains of corporate profit. In the coming years, this is a good sector to bet on. Apart from IT, some other sectors worth investing in are the financial sector – including banks, NBFCs and insurance companies – automotive companies focusing on electric, telecom, and any other company with a strong digital focus.

4. Seek Out Underpriced Companies 

Grossly underpriced companies are likely to survive and win in the long run. Examples would be digital companies with solid business models. However, not all companies will make the cut. The trick is to do your due diligence and find companies that will survive and win in the long run.

5. Wait Out the Dips

According to Mr. Agarwal, falls in the equity market are temporary while ups are permanent. This means that a sharp downward correction in the market is not a time to pull out. If you have studied the fundamentals of a stock and believe in its value, then have the courage to sit out the falls. A company with value will always correct after a bear run.

6. Watch Your Portfolio

In the name of diversification, having 30-40 stocks that you don’t understand can land you in trouble. For true diversification and wealth creation, ensure that your portfolio only consists of stocks you understand. While the ideal number of stocks ranged between 15 and 20, if you truly understand only 3-4 stocks, only invest in those. The bottom line is; do not invest in equities you do not understand.

7. Find Your Guru

A great way to find investment strategies is to look to the investment gurus such as Warren Buffet, Phil Fisher, etc. Reading books on investment or finding their teachings on the internet can go a long way in helping shape your investment strategies and aid with wealth creation.

Pruning your investment strategies to invest smartly in stocks can help make a considerable profit and create wealth in the long term.

Investors today have many ways to invest their money and can choose the level of risk that they’re willing to take to meet their needs. You can opt for very safe options such as a certificate of deposit (CD) or dial up the risk – and the potential return! – with investments such as stocks, mutual funds or ETFs.

Or you can do a little of everything, diversifying so that you have a portfolio that tends to do well in almost any investment environment.

As you’re deciding what to invest in, you’ll want to consider several factors, including your risk tolerance, time horizon, your knowledge of investing, your financial situation and how much you can invest.

If you’re looking to grow wealth, you can opt for lower-risk investments that pay a modest return, or you can take on more risk and aim for a higher return. There’s typically a trade-off in investing between risk and return. Or you can take a balanced approach, having absolutely safe money investments while still giving yourself the opportunity for long-term growth.

The best investments allow you to do both, with varying levels of risk and return.

When you invest in index funds, the common rule is to withdraw up to 4% per year, so that you’ll never run out of money. The problem is, the stock market can go up and down severely, so if you’re restricted to a certain percentage to withdraw, it means your investment income will fluctuate with the stock market. This year you might have $20k in investment income while next year you might only have $15k. If you withdraw more than 3-4%, you risk reducing your principle.

Even dividend-focused index funds haven’t been able to fully solve that. They’re great investments for overall growth, but they’re still not ideal for producing reliable growing investment income. Just about any dividend index fund or ETF you look at, whether it’s the Vanguard High Yield, Vanguard Dividend Appreciation, or anything else, you’ll find that in some years the dividends go up, and in some years they go down a bit. They’re unreliable because they don’t have robust dividend stock selection criteria.

Selling covered calls and cash-secured puts is a great way to boost your income and reduce your volatility.

Unfortunately, investing with options is an investment strategy that many people assume is risky or time-intensive. While that’s true in some cases, the reality is that options give you more flexibility than just about any other investment.

The advantage of employing multiple different investment strategies rather than relying on just one, is that you can shift more capital to the best strategies at the right times.

For example, when stocks are cheap, it makes sense to invest heavily in them. When real estate falls, it creates an opportunity to acquire a new property.

Many investments are highly correlated, meaning that when the economy is strong, they all do well, and when the economy slows down, they all suffer in price and value together. Fortunately though, there are investment classes that are not well correlated with each other, and that are even inversely correlated.

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