A Comparative Analysis of Investment Strategies Used by Investors in Securities
The income investing strategy entails incorporating all assets specifically streamlined to maximumly increase the annual passive income generated by the holdings (Chen, 2020). Typically, investors establish put together an income portfolio primarily to ensure that the investment company has a continuous stream of extra cash. Dividend-paying stocks are by far the least popular but one of the most useful portfolio protection strategies used under income investment strategy (Chen, 2020). Traditionally, dividends make up a significant portion of total returns on stock, and at times it can even account for the entire amount. It has been ascertained that companies that are stable enough to pay dividends are more likely to reap above-average returns from their stock trade. Additionally, other than investment income, research has proved that companies that pay actual dividends tend to record steady and rapid growth over time. A company’s rapid growth translates to significantly higher share prices, thus generates escalated capital gains.
Market timing is an investment strategy that acts by moving in and out of a financial market based on the predictive indicators (Segal, 2019). Such indicators are used to project future market trends and evaluate the effects of such changes. One of the most commonly used strategies used under market timing is stopped losses. This is an investment strategy that offers protection against decline share prices. Stop losses protect a company from the rapidly changing stock market; however, if not adequately planned, hard stop and trailing stop may render temporary losses permanent. Market timing strategy helps portfolio managers and full-time investors to decide the optimal times to sell or buy securities (Segal, 2019). Investors use economic forecasts and chart analysis to project the future status of the market (Segal, 2019). Market timing help investors overcome losses, avoid volatility and reap bigger profits. However, they are challenging to manage due to the daily attention to the market required and more frequent transaction costs.
The growth investing strategy emphasizes maximizing investment capital (Segal, 2019). Typically, growth investors channel their resources on small and growing companies with projected increased and above-average earnings, commonly referred to as growth stocks. Growth investing is very lucrative because buying stock in young companies successfully can provide impressive returns. Unfortunately, this kind of investment strategy comes with a moderate risk of dealing with a new company (Segal, 2019). Therefore, before opting for growth investing, an investor must first evaluate the companies potential for growth.
Some investors opt for value investing strategy, which entails gathering stock, which seems to be trading at a relatively lower rate as compared to their book value (Hayes, 2019). Value investors single out underestimated stocks in the stock market. Value investing considers the fact that stock prices can vary while the value of the company has remained constant (Hayes, 2019). Investors can reap handsomely from buying the stocks at a discounted price and holding them for a long time.
Buying and holding stock is an investment strategy that involves the buying and longterm holding of stock, notwithstanding market fluctuations (Beers, 2020). Buy and hold stock become practical in scenarios where winning stocks are taking a temporary break before they continue to rise higher. Most companies use a buy-and-hold stock strategy to lock in some of their gains, especially at a time when they do not want to sell their stock (Beers, 2020). Investors can also defer capital gains tax deductions using a buy-and-hold strategy.
References
Beers, B. (2020). How a Buy-and-Hold Strategy Works. Retrieved 15 April 2020, from https://www.investopedia.com/terms/b/buyandhold.asp
Chen, J. (2020). Investment Income Definition. Retrieved 15 April 2020, from https://www.investopedia.com/terms/i/investmentincome.asp
Hayes, A. (2019). Value Investing: How to Invest Like Warren Buffett. Retrieved 15 April 2020, from https://www.investopedia.com/terms/v/valueinvesting.asp
Segal, T. (1990). Market Timing Definition. Retrieved 15 April 2020, from https://www.investopedia.com/terms/m/markettiming.asp
Segal, T. (2019). Is Growth Investing the Right Money-Making Method for You?. Retrieved 15 April 2020, from https://www.investopedia.com/terms/g/growthinvesting.asp