The stock market is always an attractive option for a broad range of investors, whether they’re looking for the sustainable returns generated by blue-chip stocks or the huge, long-term yields of small-cap growth equities.
However, if you’re to achieve your core financial objectives through shares trading, you’ll need to deploy a viable strategy that’s proven to deliver tangible returns.
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We’ll explore three of the most effective investment strategies, while asking what type of trader they’re most suited to.
As the name suggests, value investors are essentially bargain shoppers who actively seek out stocks that are undervalued.
This may be the result of industry uncertainty or widespread economic tumult (as caused by the coronavirus pandemic), but either way, such stocks can be identified by real-time prices that don’t reflect the intrinsic value of the security.
Even on a fundamental level, the notion of value investing is based on the acceptance that some degree of irrationality exists in the market, which in turn creates periodic opportunities to buy into high-performance stocks at bargain basement prices.
With some platforms, you can also trade a basket of value stocks through a CDF or mutual fund, with this providing instant diversification and minimising your exposure to a single equity or (in some cases) marketplace. This is ideal for new investors with a slight aversion to risk, or those with knowledge of a particular industry or national economy.
While value investing can connect you with stocks of varying scope and cap size, our next optio is typically target on small-cap entities that have the potential to grow markedly in the future.
Referred to as growth investing, this strategy is focused on identifying influential startups that have the potential to emerge as “the next big thing in their industry”, and in this respect it’s slightly speculative in nature and arguably more suited to informed investors with a healthy appetite for risk.
Growth investing isn’t entirely speculative, however, as most investors make their decision based on an asset’s current stock health before measuring this against its potential growth in the future.
However, this type of investment will typically take a long time to produce a yield, while it fails to deliver regular dividends that can sustain you over time.
This leads us neatly onto the topic of dividend investment, which requires you to buy into large-cap, blue chip stocks that have a history of posting incremental growth over time (think Coca Cola, for example).
When you invest in this type of stock, you’re banking on the company in question continuing to grow at a modest but consistent pace, which will in turn translate into regular dividend payments over the course of each financial year.
This is the opposite of a speculative investment, as you’re effectively assuming a stake in the ownership of a business and leverage this as a secure and generative source of wealth.
Emerging, fast-growing economies such as Dubai are home to a number of generative dividend stocks, so you may want to compare the international market to identify the very best assets.
Author Name: Armughan Zaigham