Developing an investment strategy

The best thing about investing strategies is that they’re flexible. If you choose one and it doesn’t suit your risk tolerance or schedule, you can certainly make changes. But be forewarned: doing so can be expensive. Every purchase carries a fee. More importantly, selling assets can create a realized capital gain. These gains are taxable and therefore expensive.

Here, we look at four common investing strategies that suit most investors. By taking the time to understand the characteristics of each, you will be in a better position to choose one that’s right for you over the long-term without the need to incur the expense of changing course.

Before You Start

Before you begin to research your investment strategy, it’s important to gather some basic information about your financial situation. Ask yourself these key questions:

  • What is your current financial situation?
  • What is your cost of living including monthly expenses and debts?
  • How much can you afford to invest — both initially and on an on-going basis?

You don’t need a lot of money to get started, but don’t start if you can’t afford to do so.

Next, set out your goals. Everyone has different needs, so you should determine what yours are. Are you intending to save for retirement? Are you looking to make big purchases like a home or car in the future? Or are you saving for your or your children’s education? This will help you narrow down a strategy.

Figure out what your risk tolerance is. This is normally determined by several key factors including your age, income and your years to retirement. Technically, the younger you are, the more risk you can take on. More risk means higher returns, while lower risk means the gains won’t be realized as quickly. But keep in mind, high-risk investments also mean there’s a greater potential for losses as well.

Finally, learn the basics. It’s a good idea to have a basic understanding of what you’re getting into so you’re not investing blindly. Ask questions. And read on to learn about some of the key strategies out there.

What’s your investment objective?

It’s important to have a clear, precise investment objective. Your investment objective should consider factors such as the level of income or capital growth you’re seeking to achieve, and for what purpose. You’ll also need to consider your risk appetite when developing an investment objective.


Consider what your investment timeframe is. If you have a long-term investment timeframe, you may have more capacity to ride out any market downturns, and so could consider investments with higher risk / higher return profiles (such as shares). If your investment timeframe is short, you may need to be more cautious.

Asset allocation

Diversifying across asset classes may protect you against underperformance in any one asset class. Your asset allocation will reflect how cautious or aggressive your investment strategy is.

Determine how much of your portfolio you want in each of the asset classes (cash, bonds, property and shares). It’s important to rebalance your portfolio throughout its life to ensure that your asset class weightings continue to be appropriate for you.

Decide what investments you’ll allow yourself to make

Determine the types of investments you are happy to make, and those that you won’t make. For example, will you invest in speculative mining stocks, or stick to big, well-established companies only? You can revisit your investment objectives over time and adjust accordingly with your skill level and risk appetite.

Have a risk management plan – and stick to it

Identify the risks to your investment strategy, and how you’ll mitigate those risks. Risk management is one of the most important steps when establishing your investment strategy.

#Developing an investment strategy