3 Best Investing Strategies for Beginners in 2022

Beginners may find it difficult to decide on the best investing strategy. The investment market can seem very wide at first with so many assets to select from. Luckily, there are some time-tested and proven ways to get started. When properly selected and organized, investing strategies can let beginners generate good returns in the future as well as even make the process less time-consuming keeping enough opportunities to do what they love to do apart from trading.

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Today, we will review the 3 most popular and proven investing strategies for beginners. They will include both long and short-term approaches covering different investment assets and instruments such as stocks, indices, and more.

Defining the Best Types of Investing Strategies

Good investing strategies are the ones that not only promise big returns in either long or short-term perspectives but also minimize the risk of loss. Besides, they must be properly developed, configured, and optimized not quickly react to the changing market.

None of the approaches will guarantee 100% profit. What’s more, there is always a risk of losing all your capital. This is why having well-established risk-management instrumentation is very important. For example, buying and holding stocks or bonds does not seem to be a profitable short-term investing strategy. On the other hand, it can make sense within a longer timeframe.

A successful approach requires time. One should never expect to grow wealth right at once and go rich quickly. This is why the best investing strategies take time supposing you enter the market with realistic expectations and a clear vision of how it works.

So, here are the top 3 types of investing strategies for beginners.

1. Buy and Hold Strategy

The approach refers to the category of long-term investing strategies that do not promise quick returns. What’s more, at some point you may have a negative balance further restored following geopolitical, economic, and other events. The concept is just the same as suggested by the strategy name: you buy an asset and hold it for about 3 or 5 years.

Pros:

  • A proven long-term investing strategy used by both novice and experienced investors.
  • Beginners are not involved in active trading. They have enough time to maintain their daily tasks.
  • The overall success relies on the business performance in the long run.
  • Access to the list of best companies to invest in, for example, S&P 500.
  • No capital gain taxes, as you do not have to sell the asset.

Cons:

  • Like with other stock investing strategies, the possibility of markets getting rough are high. You need to be well-disciplined to avoid the desire to sell the asset. Most beginners find it hard to stick to the trading plan.
  • Investors must be prepared for rapid drops. Even a 50% drop is possible with a potential of falling even lower. So, you need to learn how to endure the market.

2. Buying Index Funds

The concept considers finding a potentially profitable stock index and purchasing an index fund. For beginners, the strategy can be a good option as they will not actually have to “search” for a stock index. For a start, you can select from popular indexes listed on S&P 500 or Nasdaq. They introduce a variety of top stocks that come as a good investment and portfolio diversification tool.

Pros:

  • One of the simplest stock investing strategies with a simple approach and promising yielding. A good idea is to combine this approach with other investing strategies, for example, buy and hold.
  • A good way to diversify your portfolio instead of holding several stocks.
  • The approach does not require in-depth analysis, which means less work and more time to spend on your personal needs.

Cons:

  • Investing in stocks is always risky just like any other instrument. At some point, you will have to go through tough and challenging times avoiding the temptation to sell the asset.
  • When holding different stocks, you will generate the average return but not the one from the hottest assets.

3. Income investing

The strategy supposes that one owns an investment that is able to generate cash payouts. Often, it refers to bonds and dividends investing strategies. Profit is divided into several parts. One of them can be received in hard cash that investors are allowed to spend however they want. Another way is to reinvest the profit by purchasing more bonds and stocks. Another part of your income consists of capital gains.

Pros:

  • The strategy can be used with different types of funds. There is no need to thoroughly select individual bonds or stocks.
  • Income investing is less dependent on fluctuations. Besides, your profit is secured by hard cash you can spend on your individual needs or reinvestment.
  • There is a chance to increase your profit, as trusted and high-quality stock issuers often increase payouts.

Cons:

  • Although they are less risky than other assets, income stocks are still stocks. It means they can also potentially drop.
  • The dividends can be cut to zero. Companies can leave investors with minimum or no payments.
  • Returns on bonds are very low and can rarely beat inflation. This fact makes them less attractive.
  • This strategy obliges investors to pay taxes.

The Bottom Line

With so many investing strategies choosing the right one can be a challenge for beginners. You need to evaluate all risks and potential returns before investing all your capital. A good way is to use several approaches and keep your portfolio diversified to prevent risks of a total loss.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.