15 Investing Strategies Every Buy-And-Hold Investor Needs To Know
Investing isn’t hard. It’s as simple as opening an app and clicking trade on your phone. But with that ease comes ego and emotions that can lead to bad money decisions. So it would help if you had balance and a strategy.
For us buy-and-hold investors, investing is a long-term game. Having a solid investment plan will guide where and how much to invest. Keep reading to learn about 15 investing strategies to get you started or help you polish up your game.
What is an investment strategy?
An investment strategy is a roadmap to your investing goals. It helps you stay on track and avoid emotional decisions. It’s guided by your risk tolerance, investments (stocks, bonds, ETFs, cryptocurrencies, etc.), and money goals.
Investing strategies should be:
- Easy to follow
Popular Investing Strategies
The following is a list of the most common investing strategies that fit a wide range of investors. Some plans are based on the frequency of investments, and others are based on the type of investments. All of these strategies can be combined or modified to fit your needs.
Strategy One: Invest Early
Of all the investment strategies we have, investing early is by far the most important. Time in the market increases your flexibility, discipline, and growth. But, of course, the market will always have ups and downs. We see it every day.
But these ups and downs matter less and less with time. Compound interest is your best friend. It’s your strategy to turn insignificant amounts of money into massive sums over time. The latte factor initially coined by David Bach from The Automatic Millionaire is one of the best examples of compound interest. Skipping the lines at Starbucks can save you a lot of money over time. Just $5 a day could lead to more than $300,000 in the bank after just 30 years.
Graph from calculator.net
But what if you could start a side hustle and make an extra $500 a month plus skip the latte. Investing $650 a month for 30 years could translate to more than $1.35 million. It’s a lot of money. And I’m not calculating the raises that you’re probably going to earn or the price increases you’ll capitalize on with your side hustle.
Graph from calculator.net
The point is you have to start early. Compound interest works best over time. Initially, the small investments return flat earnings. But around year 15, they start compounding. Investing is a logarithmic calculation, not a linear one.
However, early is a relative term. What’s early to one person isn’t necessarily early to the next. I like to define early as starting as soon as possible. If you’re 45 and just now learning about investing, you’re “early” starts at 45. No matter when you start, “early” starts sooner than later. So, get started today, and you’ll be light years ahead of the rest of the world.
Strategy Two: Invest Often, Dollar-Cost Averaging
Next to investing early, investing often is the best strategy you can have. Because you’re probably buying small amounts of stock at a time, investing often is vital. I promise you: buying a share at $34 versus $34.50 isn’t going to make much difference when you’re buying less than 100 shares at a time. Fifty cents for 100 shares is only $50. While $50 can add up over time, it’s impossible to predict and not worth missing out on future earnings. Unfortunately, you don’t have a crystal ball that tells you exactly when the stock’s price will be at the lowest point, so you need to be dollar-cost averaging your investments.
The principles of this constant-dollar strategy ensure that your investments average over time. This reduces the volatility of the overall purchase and spaces out your investments over regular intervals. Of course, you will sometimes invest when the price is high and occasionally hit the lowest prices. The most important thing you do is avoid investment mistakes like poorly timed lump-sum investments and missing out because you tried to time the market.
Strategy Three: Passive Investing also known as ETF/index investing
Passive investing is a buy-and-hold strategy that looks to mirror the broader market or classes of stocks. This laissez-faire style isn’t for the lazy. Investors may not be actively trading stocks, but they need to identify funds that fit their risk tolerance and have low costs.
Investors should understand the difference between exchange-traded funds (ETFs), mutual funds, and index funds. Passive investors can passively invest with funds that track the major stock market indexes like the S&P 500 or the NASDAQ, a sector, market caps, currencies, real estate, commodities, or asset classes. These funds are directly tied to the broader market and the individual stocks held in the fund. As the overall market goes up and down, so do these funds.
For some stable passive investing options, check out Vanguard’s VOO, which mirrors the S&P 500, or Invesco’s QQQ, which mirrors the NASDAQ.
Strategy Four: Asset Allocation Investing
Asset Allocation Investing is an investing strategy best reserved for advanced investors. It requires more skill than some of the other investment strategies. Investing with a strategic asset allocation adheres to a balanced combination of assets with expected returns in each class. It minimizes risk by spreading out the investments over multiple asset classes. It is usually associated with a buy-and-hold investment strategy. An asset allocation strategy can include a mixture of stocks, bonds, cash, and fixed income. The portfolio may need to be rebalanced from time to time.
An example asset allocation strategy for a 20-year old that is higher risk may include 95% stocks, 10% fixed-income, 5% cash. In contrast, the plan for a 65-year-old may transition more to 55% stocks, 20% bonds, 15% fixed income, 10% cash.
Life-cycle funds such as Vanguard’s Target Retirement 2030 Fund mix asset classes within the investment portfolio based on age. As an investor approaches retirement, the fund shifts to more bonds than individual stocks to reduce investment risk and preserve capital.
Some investors may have a random asset allocation to hold a fixed amount of money in stocks, bonds, speculative stocks, and cryptocurrencies. These investors may sell and rebalance their portfolios when one asset class gets higher than the others. This strategy carries more risks and isn’t recommended for the everyday buy-and-hold investor.
Strategy Five: Growth Investing
Growth investing is one of the most popular investment styles that focus on increasing an investor’s return on investment through big companies poised for growth. These investors are looking for companies that are innovative and changing the future. These companies often have impressive returns.
Growth companies may be young or small companies who expect to increase earnings at a rate more significant than the average company in their industry or the overall market. They have excellent potential. These companies don’t generally offer dividends as they reinvest their earnings back into the company rather than paying shareholders. They are often expensive stocks to buy as investors value the companies and expect them to be worth a lot in the future. These companies may have newer technologies that put them ahead in the game.
Growth investing can be risky as these companies may not have proven themselves in the world of business. These companies have great potential, but sometimes they fail. Growth investors need to understand historical earnings growth, forward earnings growth, profit margins, and return on equity when buying stock from growth companies.
Growth companies include Amazon (AMZ, Alphabet (GOOG), Apple, Facebook (FB), and more. You can diversify your growth investments by investing in growth companies via ETFs like the following and many more:
- Invesco’s NASDAQ ETF (QQQ)
- iShares Russell 1000 Growth ETF (IWF)
- Vanguard Growth ETF (VUG)
- ARK Innovation Fund (ARKK)
- iShares Biotechnology ETF (IBB)
Strategy Six: Value investing
Value investing is an investment strategy made popular by Warren Buffet. These investors like to buy stocks from good companies that are trading at less than their book value. Value investors believe that the market underestimates these stocks. These fluctuations in stock price motivate investors to buy stocks when no one else wants to own the company. Value investors see this as the company’s stock on sale.
The idea is that buying the stock at a lower price yields a larger return on the investment when you sell it. Value investors look for a low price-to-earnings ratio to show that the price is relatively undervalued compared to its earnings. They also like to see that the company has minimal debt and strong potential for revenue growth.
Value investors like to make sure that the stock has a margin of safety. This allows investors some room for error. Because they are buying a stock at such a bargain price, they have some margin of safety if the stock doesn’t perform as predicted. When you buy a stock for $50, when it usually sells for $100, you’ll make $50 just for the stock returning to its expected value.
There’s less risk when you buy companies on sale. However, the reverse can also be true. Some companies are on sale because they have problems that can lead to bankruptcy. Therefore, investors need to use caution when investing in individual stocks and only buy companies after a complete fundamental analysis.
Strategy Seven: Dividend investing
Dividend investing is another popular investment strategy. Its focus is on buying stocks that pay continuous dividends. Once the investor has an extensive portfolio, the return on investment from dividends alone fuels the portfolio to grow.
Dividend companies tend to be large, well-established companies that are less focused on growth and more focused on continuous cash flow. As a result, they return profits to investors in the form of dividends.
Investors can begin looking for high-paying dividend companies by looking at the Dividend Aristocrats and Dividend Kings lists.
Dividend aristocrats are companies that have increased their dividend every year for the last 25 consecutive years. You’ll find companies like Caterpillar, Chevron, Cardinal Health, Realty Income Corporation, and more on this list.
Dividend kings have sustained the increase for at least 50 consecutive years. You’ll see companies like Coca-Cola, Johnson & Johnson, Procter & Gamble, Emerson Electric, Target, and many more on this list. There are plenty more dividend-producing companies to choose from. Do your homework.
Strategy Eight: Blue chip investing
Blue-chip companies are solid companies with good financial statements. These famous companies are similar to value companies, except they’re not necessarily on sale. However, the reliable return on investment is suitable enough for blue-chip investors.
These companies have:
- A dependable business model
- A proven track record
- A strong reputation
- Reliable returns on investment
Examples include Apple, Berkshire Hathaway, Coca-Cola, Johnson & Johnson, and Disney. These are companies that have been around for a long time and will likely continue to do so. However, they have built a large moat that only they can service, and we rely on them. Some might even say they’re too big to fail.
Strategy Nine: Small-Cap Investing
Small-cap companies have a market capitalization between $300 million and $2 billion. Many of these small companies are poised for growth. For example, an early investment of $1,000 in Amazon at $18 per share in 1997 would be worth more than $2.34 million today. The originally small-cap company with a $1 billion valuation has grown to over $1 trillion today.
Of course, not all small-cap investments will be as successful as Amazon. And picking which ones are going to be the most successful is not an exact science. So if you’re interested in small companies, be sure to do fundamental analysis and decide based on your risk tolerance and financial goals.
You may find that investing in small-cap companies through ETF works best for you. For example, check out the Russel 2000 Index funds like BlackRock’s iShares Russell 2000 ETF (IWM) or Vanguard’s Russell 2000 ETF (VTWO).
Strategy Ten: Large Cap Investing
The opposite of small-cap companies is large-cap companies. These companies have a valuation greater than $10 billion. They represent almost 93% of the market in the United States. Well-known companies like Apple, Microsoft, Amazon, Facebook, Alphabet, Visa, Berkshire Hathaway top the list.
These companies tend to be well-established with transparent policies. They sometimes pay dividends. They’re great to put in your portfolio because they are stable and impactful companies. In addition, they’re leaders in the industry. Investing in large-cap companies is less risky than in small-cap companies, but the growth may not be as significant. Only you can decide what portion of your portfolio you want to allocate to these safer investments.
Strategy Eleven: Speculating investing
Some investors do not claim speculating is a form of investment. Speculators do not make their investment decisions based on fundamentals or analysis tools. There is more risk with speculating than with investing. Speculators often seek abnormally high returns.
Some will use options, short selling, or buying companies with nothing more than a dream. Many times speculative investments have a high probability of failure. Speculating isn’t quit gambling in that speculators will make an educated decision about their trades (investments). But the speculative risk is inherently higher than with a traditional investment. Speculative stocks are usually volatile and at risk for bankruptcy.
Some would consider space stocks to be speculative investments because we don’t know if or when ordinary people will be able to travel to space for fun. However, these playful investments keep your portfolio open to large fluctuations in value. You can minimize your risks by purchasing ETFs like the Procure Space ETF (UFO) or Ark Space Exploration and Innovation ETF (ARKX).
Strategy Twelve: Socially Responsible Investing
This relatively new form of investing is also called environmental, social, and governance (ESG). It’s centered around socially responsible investments.
These companies would have good social value. Many are focused on communities and making the world a better place. They may be companies that have positively impacted social justice, environmental sustainability, and alternative energy/clean air technology.
You’ll recognize companies like Nike, Microsoft, Yum Brands, Five Below, Sherwin Williams, and many more. However, keep in mind, these socially appraised companies may fall out of favor with investors as time changes. So here are a few of the many ETFs to minimize your risks through diversification: EGS U.S. Stock ETF (ESGV), First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index (GRID), or Financial Select Sector SPDR Fund (XLF).
Strategy Thirteen: Cryptocurrency Investing
Believe it or not, it’s 2021, and you can invest in cryptocurrency. Cryptocurrencies like Bitcoin, Ethereum, Solana, Dogecoin are digital currencies that can buy goods and services via blockchains. They are considered to be one of the most secure currencies. However, they’re unregulated and subject to lots of volatility. As a result, many investors in this market are considered speculators, riding the momentum as prices skyrocket for no reason.
Cryptocurrencies do not have any inherent value. Their value is derived from investors. The only way to make money from them is for someone to pay you more for the currency than you did. It’s sometimes called the “greater fool theory of investment.”
Shares can be bought via cryptocurrency exchanges like Coinbase, Binance.US, eToro, and others or through online brokerages like Robinhood, SoFi, or Webull. We recommend caution and a solid investment strategy when investing in cryptocurrencies.
Strategy Fourteen: Real Estate Investing
You have lots of options when it comes to real estate investing. Real estate investing is putting money into real estate. Profits are made when your earnings exceed your costs.
The first image that probably comes to mind is buying a fix-it-upper and selling it for a profit. This is just one of many ways to invest in real estate. Buy and hold investors don’t focus on flipping properties for money. Instead, they look at long-term investments. For example, you may consider buying a rental property or an Airbnb property as long-term investments. These assets may require a lot of capital upfront and require a lot of time to manage.
Crowdfunding is another popular investment strategy—options like CrowdStreet, Fundrise, and many more offer investors an online commercial real estate investing platform. Individuals can invest directly in commercial real estate investment opportunities without having to buy the properties themselves. However, this investment strategy is slightly riskier because it requires a larger investment sum. Instead, investors can invest in a diversified portfolio of real estate investments with REITs (Real Estate Investment Trusts).
REITs allow investors to invest in real estate through stock exchanges. A REIT is a publicly-traded company that owns income-producing commercial real estate properties. Examples include retail, residential, healthcare, offices, and mortgages. Investors can invest in REITs as they invest in stocks. For example, you can check out American Tower Corp (AMT), Crown Castle International Corp (CCI), or Realty Income (O). You may find that these companies own popular real estate that you already use, like movie theatres, restaurants, and shopping centers.
Strategy Fifteen: Peer-to-peer investing
Peer-to-peer investing is a strategy based on peer-to-peer loans. Investors make unsecured loans to companies in return for interest income as charged by the loan rate. Average rates can range from 5.99% to more than 25%. Of course, these investments are high-risk and not for the average investor. Popular examples include LendingClub, Prosper, and more. So be sure to do your homework.
How Do I Develop My Long-term Investment Plan
The decision to invest is personal. Some are investing for retirement, and others are investing in building wealth. The best investments are investments that you believe in and want to follow for the long term. The market isn’t necessarily rational or efficient. Past performance doesn’t necessarily predict future earnings. The following list can help you reach your long-term investment objectives:
- Develop good financial habits.
- Start a budget. Pay off debt.
- Learn more about personal-finance and how to invest. Stock picking isn’t for everyone, but it can be.
- Invest your money in a Roth IRA tax-deferred account first. Then open a taxable individual brokerage account.
- Pay attention to fees and commissions associated with buying and selling stock.
- Avoid actively managed mutual funds with high expense ratios.
- Consider allocating a portion of your portfolio to low-risk passive investments like target-date funds, ETFs, and index funds with low-cost management fees.
The best way to invest is personal. However, with a solid strategy and a few investing tips, you can outperform the market without a financial advisor. Stock prices fluctuate day to day and minute to minute. Learning more about investing strategies will put you in a better position to make the right decisions for you.
As a shareholder, you need to take time to understand the companies you want to invest in. Then, you’ll save money and time with solid investments that you love. In the process, you’re sure to learn more about yourself and investing. Finally, be sure to critically appraise your current financial situation and set realistic, achievable goals.
Theresa is a personal finance blogger. She writes content for busy professional women to take control of their money and investments. She enjoys reading, traveling, cooking, and writing. Her work has been featured on GoBanking Rates, Your Money Geek, Savoteur, the Corporate Quitter, Thirty Eight Investing, and more.