What’s an investment strategy, and how do I make one?

Everyone’s investment strategy is different. There isn’t a one-size-fits-all approach. But here’s a starter for ten.

Our tips can guide you in making your own investment strategy, but we can’t give you personal advice.

The value of your investments can fall and rise, and you could get back less than you put in. If you’re not sure about investing, you should get independent advice.

What is an investment strategy?

In its simplest form, an investment strategy looks at the goals you’d like to achieve from investing, the type of investor you are, and the types of investments you have.

Your strategy can keep you on track and allow you to explore what you want out of investing both now and in the future.

The best part is that it isn’t set in stone; you can change it as often as needed.

You also don’t need to spend hours on your strategy… unless you want to. We don’t judge!

1. An investment strategy should be about what you can afford

When it comes to the first part of your strategy, make it about you and think AAA:

Age

Age is just a number, baby. But it matters when it comes to investing. Someone in their twenties should have a different approach to investing than someone in their fifties. This tends to go hand in hand with your risk appetite.

Appetite

First, let’s address the elephant in the room—what’s a risk appetite?

Your risk appetite is the amount of risk you’d be willing to take when investing. It’s not just based on your age; there are a few other factors to consider, like the stock market.

The stock market is cyclical, meaning it has ups and downs. Peaks and troughs. Booms and busts. Bulls and bears. You get the idea.

We can’t rely on the market’s past performance to predict future outcomes, but we can see how it has changed over time.

When you’re younger, you can typically invest for longer, which means you can recover losses that occur through the ups and downs of the market. You could be a bit more adventurous if you feel comfortable doing so. When you take on higher amounts of risk, your investments have the potential to make higher returns. 

Although this isn’t a guarantee.

As you age, you don’t want market fluctuations to impact your money as much, and taking on too much risk could affect your future goals. The returns may be lower, but low and steady can be a real benefit.

Amount

You decide how much to invest, although you might find it helpful to invest a little and often.

You can invest as little as you can afford, so you don’t need to break the bank. Investing in smaller amounts could help you feel more in control. This is known as regular investing. It forces you not to think about ‘the best time to invest’ and can also help you feel more confident about any bumps in the market.

You’ve got your AAA’s in the bag. What’s next?

2. Set your investment goals

Your investment goals should align with your overall financial goals—and may even influence them. When you set them, make sure you know they can move and grow with you.

Your goals today might not be the same as in a year, five, or 10. So, it’s always good to check in with yourself and see if you’re on track or need to move the goalposts.

You might find it helpful to set your investment goals based on a timeframe, such as short, medium and long term, or in years. You may find that your goals aren’t always about money.

Setting goals could look like the following: but remember, this is not personal advice; it is just a guide.

Short-term goals (1 to 3 years):

• Invest €100 a month
• Make investing part of my overall saving strategy
• Learn more about investing

Medium-term goals (3 to 5 years):

• Build my investment portfolio
• Save towards my goal of €50,000
• Be able to afford a deposit for a house

Long-term goals (5 years +):

• Invest in a few funds if you fancy it
• I use my investments for bigger goals such as retirement, paying off my mortgage, and a lifetime trip.
• I will put any bonuses, Christmas, or birthday money into my investments after I’ve put some into my pension.

3. Which investment types suit your goals?

If you need to get to grips with all the different investment terms, our jargon buster will help.

But for now, we’ll talk about shares and funds.

When you buy a share, you’re purchasing a minimal amount of a company. You then become known as a shareholder. When you buy shares in a company, you may be paid a dividend.

Not all companies will pay them, but generally, they share that amongst shareholders when they profit. You can be paid as income with some funds, or your dividend can be reinvested automatically.

If your dividend is reinvested automatically, it means that if you had 100 shares in a company and they paid out a 10% share dividend, you’d then have 110 shares.

With shares, you’re your investment manager. You’ll keep tabs on the share price and how the company is performing in the market and make investment decisions based on your knowledge and observations.

Funds are a little bit different. Instead of buying a single share, investors’ money is pooled together and managed by a fund manager. They do all the leg work, so you don’t have to.

Because there are lots of different shares in a fund or lots of different assets (what the fund is made up of), your risk is spread more widely.

Think of it like eggs.

If you buy a single egg (like shares in a single company), there’s a risk that by the time you get it home, it could crack. 

If that’s the case, you don’t have any other eggs. 

But if you were to buy a box of ten eggs (like a fund made up of lots of shares), and by the time you get home, two of them break, you’ve lost 20%, but you still have 80% remaining. Your risk is more widely spread.

You’ll have noticed by now that each part of your investment strategy feeds into the others.

So, to know what to invest in, you need to see if you’re more risk-hungry (happy to take a chance on a single egg not cracking) or risk-averse (you’d instead take the box of eggs and spread your risk more evenly).

4. Using good investment techniques

Once you have decided on your investment risk, it’s time to learn some Investment techniques or investment strategies. Investment techniques are like the tools in your financial toolkit, helping you analyse and select the best opportunities. 

Here are some standard techniques to consider:

1. Fundamental Analysis: Think of this as getting to know a company inside out. You’ll dive into their financial statements, check out the management team, and keep an eye on industry trends. It’s like being a detective, piecing together clues to estimate how the company might perform in the future.
2. Technical Analysis: If you’re more of a visual person, this might be your jam. Technical analysis involves looking at charts and patterns to predict future price movements. It’s a bit like weather forecasting but for stocks. You’ll be spotting trends and making educated guesses on where the market is headed.
3. Diversification: Ever heard the saying, “Don’t put all your eggs in one basket?” That’s diversification in a nutshell. By spreading your investments across different asset classes, sectors, and geographic regions, you reduce the risk of losing all your money if one investment goes south. It’s about not putting all your hopes on a single bet.
4. Dollar-Cost Averaging: This technique is all about consistency. You invest a fixed amount of money at regular intervals, no matter what the market is doing. It’s like setting up a standing order for your investments. This way, you buy more shares when prices are low and fewer when they’re high, smoothing out the bumps in the market.
5. Value Investing: Channel your inner bargain hunter with value investing. You’re on the lookout for undervalued companies with strong fundamentals and growth potential. It’s like finding a hidden gem at a thrift store. You believe that the market hasn’t recognised the company’s true value yet, and you’re ready to invest before everyone else catches on.

Always amend your investment strategy and seek sound advice!

The market is like a rollercoaster, full of ups and downs. 

Be prepared to adjust your investment strategy as conditions change. Flexibility is key. Don’t be afraid to tweak your approach if something isn’t working.

Sometimes, however, it’s best to call in the experts.

Consider consulting with a financial advisor or investment professional for personalised advice. They can provide insights tailored to your specific situation and help you navigate the complexities of the market.

They will also consider your age, what type of goals you want to achieve, and by when.

And that’s how you start to build an investment strategy.