To be an effective investor, you need a plan
that guides your choice of investments, the way you buy, how long
you keep investments in your portfolio, and when you sell. That’s
called an investment strategy.
Without a strategy, you’re likely to
invest randomly — a stock here, a bond there — without
a sense of how your investments can work together to achieve the
return you want, while helping to control your
risk. What’s
more, much of the long-term success of any portfolio depends on
the way its assets are allocated, or distributed, among the range
of investment choices.
Devising a strategy
The good news is that you don’t have
to create an investment strategy on your own. Over the years,
other investors have developed effective methods for choosing,
buying, and selling. Once you understand how these methods work,
you can select the ones that are most relevant and adapt them
to fit your own investment style.
Investment advisers typically put investment
strategy at the top of the list of services they provide. Your
adviser can explain how different investment strategies work and
which ones may be most helpful to you.
Practicing risk-free
A number of brokerage firm Web sites let you select an imaginary portfolio of investments and track the results online. Since you’re not actually buying the investments, there’s no risk. Of course, there’s no return either. But it can be a good way to experiment and build confidence.
