In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Usually the strategy will be designed around the investor's risk-return tradeoff: some investors will prefer to maximize expected returns by investing in risky assets, others will prefer to minimize risk, but most will select a strategy somewhere in between.
Passive strategies are often used to minimize transaction costs, and active strategies such as market timing are an attempt to maximize returns.
One of the better-known investment strategies is buy and hold. Buy and hold is a long term investment strategy, based on the concept that in the long run equity markets give a good rate of return despite periods of volatility or decline. A purely passive variant of this strategy is indexing, where an investor buys a small proportion of all the shares in a market index such as the S&P 500, or more likely, in a mutual fund called an index fund or an exchange-traded fund (ETF).
This viewpoint also holds that market timing, that one can enter the market on the lows and sell on the highs, does not work or does not work for small investors, so it is better to simply buy and hold. The smaller, retail investor more typically uses the buy and hold investment strategy in real estate investment where the holding period is typically the lifespan of their mortgage.
Famous quotes containing the words investment and/or strategy:
“There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)
“... the generation of the 20’s was truly secular in that it still knew its theology and its varieties of religious experience. We are post-secular, inventing new faiths, without any sense of organizing truths. The truths we accept are so multiple that honesty becomes little more than a strategy by which you manage your tendencies toward duplicity.”
—Ann Douglas (b. 1942)