Investing Strategies for Long-Term Growth

Investing strategies shape the way of thinking about how you select the investments within your portfolio. Ideally, your investing strategy should meet your financial goals and grow your wealth while maintaining a level of risk that lets you sleep at night.

Some risk-averse people are happy leaving their money in high-interest banking accounts, some indexes, and bonds – while others are only happy with taking risky options calls that will make or break their investment portfolio in a matter of weeks.

Neither investing strategy is inherently wrong (though options trading is less advised because of the risk) – it must match what each unique investor wants.

However, some investment options are more popular for a reason. They provide safe, mostly consistent returns, with less risk than other strategies.

Disclaimer: I am not a financial planner. The information provided is for research purposes but is not meant to be used as the sole source of investing strategies. Consult a fiduciary financial advisor to find investing strategy that works for your unique goals and needs.

Considerations when Picking your Investing Strategy

1. Consider your long-term goals vs. short-term goals

Long-term is anything over 5 years, typically retirement accounts, or savings for the future. If you want to buy a house in 3 years – investing in safer investments like CDs or high-yield savings ensures some returns while not having to worry about a crash in the stock market “wiping out” your investment right before you buy a house. I say “wiping out” since it isn’t an actual loss of money unless you decide to sell during a market downturn. Which is not advised, but your available money for that house does go away in a market downturn until the market recovers again.

Balancing your portfolio with long-term vs. short-term goals and knowing the difference is paramount. Knowing which money is for retirement and which is for a home or dream wedding makes it a little easier to plan which investment vehicle is best for you.

2 Low-risk vs. High-risk investing Strategies

 Investing always has some risk. However, that risk can vary widely. Buying a Federally insured CD carries virtually no risk but also pays very little. Buying stock in a new technology start-up has more risk, but also the chance for exponential value growth.

Understanding the risk helps you pick which investment strategy can work for you, and how you want to allocate your portfolio accordingly.

As food for thought, Venture Capital firms make money by investing in start-ups looking for unicorns like the next Facebook, Netflix, or Amazon. They live by a common rule of thumb is that of 10 start-ups, only three or four fail completely. Another three or four return the original investment, and one or two produce substantial returns. The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.

Venture Capitalists diversify their risk since they know only 10-20% of their Portfolio will return the gains that pay for their entire company.

Popular Investing Strategies

1. Value Investing

Made famous by Warren Buffet, value investing is the bargain hunting of investment strategies. By buying what value investors believe to be undervalued stocks with strong long-term prospects, value investors seek to earn rewards when companies achieve their true potential years ahead. 

Warren Buffet first invested in Coca-Cola in the 1990s. The price has 10x since then while providing a dividend income the entire way.

Value investing is trying to find the bargains and reap their rewards for years to come.

2. Growth Investing

Like value investing, this investing is looking for growth from companies. However, instead, the focus is more on the industry or company that appears poised to grow at an above-average pace.

New technologies or industries often fall into this category. For instance, autonomous cars, cryptocurrency trading, AI, block-chain, and renewable energy are all set to dominate as potential emerging markets in the 2020s.

If you are a growth investor who believes in one of these industries or particular companies – you are willing to pay a higher premium now on potentially over-valued stock, to reap the benefits where that company is dominating the industry in five years or the market cap or the industry has exploded into the mainstream market.

Think of Tesla IPOing in 2010 at $4 when everyone said it was over-valued, to hovering around $700 in 2021 – that is growth investing.

3. Index Investing

Index funds are an investment that tracks a market index, typically made up of stocks or bonds. They usually entire markets like the S&P 500, Russell 2000, international markets, various bonds, or emerging markets.

By purchasing an index share, you are buying a basket of those stocks in the market index and returning whatever that market index returns. If the S&P 500 rises 7%, so does your index fund that is invested in the S&P 500. 

Indexes are generally a good idea to diversify your risk, get market (or slightly above with some management) returns, and not have to worry about picking individual stocks.

For more information, look at our Beginner’s Guide to Index Fund Investing.

4. Income Investing

Some investors are looking to produce a steady income stream. Many investors use income investing to help cover their living expenses, particularly when transitioning into retirement.

A lot of different investments can produce income, from dividend-paying stocks to bonds and CD ladders, to real estate via rental income. A lot of options exist to produce a steady income if you have the capital to invest.

Financial independence retirement early is often made up of these kinds of income-producing assets and a safe withdrawal rate – which enables people to retire as early as their 20s and 30s!

5. Active Trading

Active investors use the investing strategies of trading more frequently and opportunistically to capitalize on market fluctuations. They often use technical analysis, study past market trading volume or price trends, to figure out when to try to time the market.

It’s not my favorite investment strategy because people generally don’t beat the market when they use active trading. It eats up energy, time, and performs worse than if you bought an index fund. Only 2% of Full-time, active managers can beat the market 5 years in a row. Active Investment Managers analyze the market for 80 hours a week, have technical MBAs, all the tools, and live and breathe finances – yet only 2% of them can beat the market over the long term. It is tough to out-perform that trend in the market.

6. Dollar-cost Averaging

Investors who dollar-cost average their way into the market spread their stock or fund purchases out over time, buying the same amount at regular intervals. Doing so helps to “smooth” out the purchase price over time as you purchase more shares when the stock price is down and buy fewer shares when the stock price is up. Over time, you gain a better average entry price and reduce the impact of market volatility on your portfolio.

Of course, when you see dips in the market – I at least always buy more than what I normally would each time. Helping lower the average even more.

7. Dumpster Fire

The dumpster fire strategy is taking a small percentage of your portfolio (1-2%) and investing it as if it would be the same as throwing it in a dumpster fire.

These ideas are like the GME trip to the moon or buying DogeCoin in early 2021. What would seem like dumb investments early saw some people’s investments 33x in 4 days. Allocating part of the portfolio lets you potentially generate exponential returns, with little risk of hurting your overall portfolio, while not having FOMO over missing some crazy gains.

Example of Investment Strategies

To illustrate that you can mix strategies/tactics successfully – Grant Sabatier of Millenial Money shares his investment break-down with his readers.

He has already FIRE’d in the traditional sense, so he is now focusing on having money well into the future through steady returns on indexes and other mostly long-term investments. 

1. Long-term investing strategy (10+ year horizon)

• 70% in the index (index funds)
• 20% in long term investment (Individual equities like specific growth/value stocks)
• 5% in physical real-estate and REITs
• 5% invested in non-traditional investments like domains and arts

Key Take-Aways

• Picking investment strategies that work for you revolves around understanding your risk tolerance, and short-term vs long-term goals.
• Many investment strategies exist and you can utilize a variety of them to get to your desired end goal.

Action item

Are you currently investing? Is your investment strategy working for you? If not, how can you fine-tune it so it is something that makes you money while you can sleep easily at night?