3 Best Investment Strategies for People Without Time to Invest

Most investment strategies seem time-consuming and impossible to extremely busy people. However, you can greatly overcome the two concerns by using proven investment strategies for people with little time at their disposal.

Investing in a strategy that suits your situation can save you time and enable you to concentrate on matters of much significance. The best aspect of investment strategies is that there’s always a variety to choose from.

Let’s look at the types as well as examples of investment strategies, how to choose an investment strategy that suits you, and how Findex can help you solve your investment problems when you lack the time to handle them.

The 2 Types and Best 3 Examples of Investment Strategies for People Without Time for Investing

A suitable investment strategy saves you time, lowers your risks, and optimizes your possible returns. However, such a strategy needs some time and patience before you start realizing its fruits. So it’s significant that you decide to invest with only achievable goals in mind.

Types of Investment Strategies

Investments can be divided into two classes—namely, defensive and growth investments.

Defensive Investment Strategies

Defensive investments strategies are investments that come with reduced risks. They are geared towards generating an income while protecting the invested capital.

Examples of defensive investments include fixed interest and cash investments, normally used to fulfill short-term financial objectives and expand a portfolio.

Growth Investments Strategies

Growth investments strategies are often high-risk investments but give handsome returns in comparison to defensive investments. They are geared towards capital growth, although a few offer income in form of property rent or dividends on shares. However, growth investment rates can be unstable within short intervals.

Examples of growth investments include property, alternative investments, and shares.

Growth investment strategies are normally used to:

• Reap higher returns although at high risk.
• Fulfill long-term (5 years and over) financial objectives.

The Best 3 Investment Strategies for People Without Time for Investing

Here are the right strategies for the people who lack the time to invest:

Strategy 1: Income Investing

Income investing refers to having investments that generate cash payouts for you, mostly bonds and stocks dividends. A portion of the returns is paid in cash, and you can either top up your investment or meet your commitments using them. You still can rejoice in the advantages of capital earnings on top of the income gains in case you possess income stocks.

Benefits of Income Investing

1. You can simply execute an income investing strategy by index funds or income-oriented funds, so you don’t need to grab personal bonds and stocks here.
2. Income investments are fairly stable as compared to other types of investments, and you enjoy the security normal cash payout due to your investment.
3. High-quality dividend stocks grow their payouts with time, increasing how much they can earn without additional effort.

Drawbacks

1. Although less risky compared to other investments, income stocks are just stocks like the rest, and their rates can fall as well. In case you’ve invested in personal stocks, they can greatly lower your dividends. Resulting in capital loss and lack of payouts.
2. In case you possess dividend stocks and bonds in an ordinary brokerage account, you’ll be required to pay income tax; therefore, you may wish to hold these stocks in a retirement account like an IRA.

Strategy 2: Buy the Index

This strategy involves discovering a desirable stock index and purchasing an index fund founded on it. The two prominent indexes are the Nasdaq Composite and the Standard and Poor’s 500. Each possesses many of the market’s prime stocks; hence they’ll offer you a variety of investments. You can easily own the market instead of attempting to conquer it.

Benefits of Buy the Index

1. Buying an index is an easy technique that can generate incredible outcomes, particularly when you couple it with a buy-and-hold mind. This will result in a weighted average return of the assets of the index. And given a varied portfolio, you’ll have fewer risks compared to possessing just a few stocks.
2. It needs less time, hence allowing you time on other matters of importance to you. Because you won’t be required to evaluate the particular stocks to spend on.

Drawbacks

1. Investing in stocks is potentially risky, but having a diversified stocks portfolio is regarded as a secure way of doing it. However, if you intend to accomplish the long-term returns of the market, a regular ten percent per annum for the S&P 500, you’ll have to hold on to your stocks past the hard times.
2. Because you’ll be purchasing an assortment of stocks, you’ll earn their average return, as opposed to the hottest stocks return. With time most investors battle to win the indexes.

Strategy 3: Value Investing

Value investors are agreement shoppers. They look for stocks they think are underestimated. Value investing is foreseen on the notion that some level of irrationality prevails in the market. In theory, irrationality offers chances to acquire stock at a reduced price and earn money from it.

Benefits of Value Investing

1. The investors need not analyze financial data volumes to land deals.
2. Most value mutual funds offer investors the opportunity to possess a variety of stocks believed to be underestimated.

Drawbacks

1. It takes some reasonable time to start working for you.
2. It requires thorough stock research as well as extra effort to succeed.

How to Choose an Investment Strategy That’s Right for You

Before spending your hard-earned money on an investment strategy, ensure you do thorough research about the investment to understand:

• How the investment strategy functions.
• How it yields a return and the kind of return anticipated. Is it income or capital gain?
• The risks that come with the investment.
• The investment’s purchasing, holding, and trading fees.
• The acceptable period to invest to earn the anticipated return.
• Tax and legal importance of the investment.
• How the investment will participate in building your assorted portfolio.

Investment FAQs

Here are some of the commonly asked questions about investment according to investopidia.

Who Should Use Value Investing?

Value investing is best for investors looking to hold their securities long-term. If you’re investing in value companies, it may take years (or longer) for their businesses to scale. Value investing focuses on the big picture and often attempts to approach investing with a gradual growth mindset.

People often cite legendary investor Warren Buffett as the epitome of a value investor. Consider Buffett’s words when he made a substantial investment in the airline industry. He explained that airlines “had a bad first century.” Then he said, “And they got that century out of the way, I hope.”1 This thinking exemplifies much of the value investing approach: choices are based on decades of trends and with decades of future performance in mind.

In addition, value investing has historically outperformed growth investing over the long-term. One study from Dodge & Cox determined that value strategies have underperformed growth strategies for a 10-year period in just three periods over the last 90 years. Those periods were the Great Depression (1929-1939/40), the Technology Stock Bubble (1989-1999), and the period 2004-2014/15.2.

Pros and Cons of Value Investing

Pros

• There’s long-term opportunity for large gains as the market fully realizes a value company’s true intrinsic value.
• Value companies often have stronger risk/reward relationships.
• Value investing is rooted in fundamental analysis and often supported by financial metrics.
• Value companies are more likely to issue dividends as they aren’t as reliant on cash for growth.

Cons

• Value companies are often hard to find especially considering how earnings can be inflated due to accounting practices.
• Successful value investments take time, and investors must be more patient.
• Even after holding long-term, there’s no guarantee of success – the company may even be in worse shape than before.
• Investing only in sectors that are underperforming decreases your portfolio’s diversification.

Strategy 2: Growth Investing

Rather than look for low-cost deals, growth investors want investments that offer strong upside potential when it comes to the future earnings of stocks. It could be said that a growth investor is often looking for the “next big thing.” Growth investing, however, is not a reckless embrace of speculative investing. Rather, it involves evaluating a stock’s current health as well as its potential to grow.

A drawback to growth investing is a lack of dividends. If a company is in growth mode, it often needs capital to sustain its expansion. This doesn’t leave much (or any) cash left for dividend payments. Moreover, with faster earnings growth comes higher valuations, which are, for most investors, a higher risk proposition.

While there is no definitive list of hard metrics to guide a growth strategy, there are a few factors an investor should consider. Research from Merrill, for example, found that growth stocks outperform during periods of falling interest rates. It’s important to keep in mind that at the first sign of a downturn in the economy, growth stocks are often the first to get hit.

Growth investors also need to carefully consider the management prowess of a business’s executive team. Achieving growth is among the most difficult challenges for a firm. Therefore, a stellar leadership team is required. At the same time, investors should evaluate the competition. A company may enjoy stellar growth, but if its primary product is easily replicated, the long-term prospects are dim.

Who Should Use Growth Investing?

Growth investing is inherently riskier and generally only thrives during certain economic conditions. Investors looking for shorter investing horizons with greater potential than value companies are best suited for growth investing. Growth investing is also ideal for investors that are not concerned with investment cashflow or dividends.

According to a study from New York University’s Stern School of Business, “While growth investing underperforms value investing, especially over long time periods, it is also true that there are sub-periods, where growth investing dominates.” The challenge, of course, is determining when these “sub-periods” will occur. While it’s inadvisable to try and time the market, growth investing is most suitable for investors who believe strong market conditions lay ahead.

Because growth companies are generally smaller and younger with less market presence, they are more likely to go bankrupt than value companies. It could be argued that growth investing is better for investors with greater disposable income as there is greater downside for the loss of capital compared to other investing strategies.

Pros and Cons of Growth Investing

Pros

Growth stocks and funds aim for shorter-term capital appreciation. If you make profits, it’ll usually be quicker than compared to value stocks.

Once growth companies begin to grow, they often experience the sharpest and greatest stock price increases.

Growth investing doesn’t rely as heavily on technical analysis and can be easier to begin investing in.

Growth companies can often be boosted by momentum; once growth begins, future periods of continued growth (and stock appreciation) are more likely.

Cons

Growth stocks are often more volatile. Good times are good, but if a company isn’t growing, its stock price will suffer.

Depending on macroeconomic conditions, growth stocks may be long-term holds. For example, increasing interest rates works against growth companies.

Growth companies rely on capital for expansion, so don’t expect dividends.

Growth companies often trade at high multiple of earnings; entry into growth stocks may be higher than entry into other types of stocks.

Strategy 3: Momentum Investing

Momentum investors ride the wave. They believe winners keep winning and losers keep losing. They look to buy stocks experiencing an uptrend. Because they believe losers continue to drop, they may choose to short-sell those securities.

Momentum investors are heavily reliant on technical analysts. They use a strictly data-driven approach to trading and look for patterns in stock prices to guide their purchasing decisions. This adds additional weight to how a security has been trading in the short term.

Momentum investors act in defiance of the efficient-market hypothesis (EMH). This hypothesis states that asset prices fully reflect all information available to the public. A momentum investor believes that given all the publicly-disclosed information, there are still material short-term price movements to happen as the markets aren’t fully recognizing recent changes to the company.

Despite some of its shortcomings, momentum investing has its appeal. Consider, for example, that The MSCI World Momentum Index has averaged annual gains of 11.76% since its inception, more than twice that of the broader benchmark. This return probably doesn’t account for trading costs and the time required for execution.

Who Should Use Momentum Investing?

Traders who adhere to a momentum strategy need to be at the switch, and ready to buy and sell at all times. Profits build over months, not years. This is in contrast to simple buy-and-hold strategies that take a “set it and forget it” approach.

In addition to being heavily active with trading, momentum investing often calls for continual technical analysis. Momentum investing relies on data for proper entry and exit points, and these points are continually changing based on market sentiment. For those will little interest in watching the market every day, there are momentum-style exchange-traded funds (ETFs).

Due to its highly-speculative nature, momentum investing is among the riskiest strategies. It’s more suitable for investors that have capital they are okay with potentially losing, as this style of investing most closely resembles day trading and has the greatest downside potential.

Pros and Cons of Momentum Trading

Pros

• Higher risk means higher reward, and there’s greater potential short-term gains using momentum trading.
• Momentum trading is done in the short-term, and there’s no need to tie up capital for long periods of time.
• This style of trading can be seen as simpler as it doesn’t rely on bigger picture elements.
• Momentum trading is often the most exciting style of trading. With quick price action changes, it is a much more engaging style than strategies that require long-term holding.

Cons

• Momentum trading requires a high degree of skill to properly gauge entry and exit points.
• Momentum trading relies on market volatility; without prices quickly rising or dropping, there may not be suitable trades to be had.
• Depending on your investment vehicles, there’s increased risk for short-term capital gains.
• Invalidation can happen very quickly; without notice, an entry and exit point may not longer exist and the opportunity is lost.

Strategy 4: Dollar-Cost Averaging

Dollar-cost averaging (DCA) is the practice of making regular investments in the market over time and is not mutually exclusive to the other methods described above. Rather, it is a means of executing whatever strategy you chose. With DCA, you may choose to put $300 in an investment account every month.

This disciplined approach becomes particularly powerful when you use automated features that invest for you. The benefit of the DCA strategy is that it avoids the painful and ill-fated strategy of market timing. Even seasoned investors occasionally feel the temptation to buy when they think prices are low only to discover, to their dismay, they have a longer way to drop.

When investments happen in regular increments, the investor captures prices at all levels, from high to low. These periodic investments effectively lower the average per-share cost of the purchases and reduces the potential taxable basis of future shares sold.

Who Should Use Dollar-Cost Averaging?

Dollar-cost averaging is a wise choice for most investors. It keeps you committed to saving while reducing the level of risk and the effects of volatility. Most investors are not in a position to make a single, large investment. A DCA approach is an effective countermeasure to the cognitive bias inherent to humans. New and experienced investors alike are susceptible to hard-wired flaws in judgment.

Loss aversion bias, for example, causes us to view the gain or loss of an amount of money asymmetrically. Additionally, confirmation bias leads us to focus on and remember information that confirms our long-held beliefs while ignoring contradictory information that may be important. Dollar-cost averaging circumvents these common problems by removing human frailties from the equation.

In order to establish an effective DCA strategy, you must have ongoing cashflow and reoccurring disposable income. Many online brokers have options to set up reoccurring deposits during a specific cadence. This feature can then be adjusted based on changes in your personal cashflow or investment preference.

Pros and Cons of DCA

Pros

• DCA can be combined with the other strategies mentioned above.
• During periods of declining prices, your average cost basis will decrease, increasing potential future gains.
• DCA removes the emotional element of investing, requiring reoccurring investments regardless of how markets are performing.
• Once set up, DCA can be incredibly passive and require minimal maintenance.

Cons

• DCA can be difficult to automate especially if you are not familiar with your broker’s platform.
• During periods of declining prices, your average cost basis will decrease, increasing your future tax liability.

You must have steady, stable cashflow to invest to DCA.

Investors may be tempted to not monitor DCA strategies; however, investments – even ones automated – should be reviewed periodically.

So you have all the information you need to invest wisely when you lack time and overally.