Investment Strategy Investment is an intentional process of creating wealth. Its driven by a strategy which should suit the investor, his environment and his objectives. Every investment plan should have a clear investment objective that drives one’s strategy. Once one has a goal to shoot for this provides motivation to pursue the strategy.
1. To preserve and increase value of your wealth. This objective requires that one invests in assets that grow the capital value of original investment. These may include real estate and stocks. Real estate has been shown to be the investment of choice of long term wealth creation and preservation. Most wealthy people either create or preserve their wealth through real estate.
2. To mimic or beat inflation. The goal of mimic inflation is a substandard goal because it acknowledges that the investment plan will not beat inflation but just closely follow it. Why would you want to be losing money? The goal to beat inflation is great. It means however one has to invest in high velocity assets that allow them to exceed the rise of inflation.
3. To hedge against loss of currency value. In this case one invests in assets that are valued in terms of stronger currencies. This may result in forex trading or converting one’s funds into a stronger currency base. However if one converts his funds say into the Euro to conserve currency value and avoid a currency value loss in USD terms, the fact remains that your money may grow in USD terms but its stagnant in Euro terms.
4. Preserve comfortable liquidity position – ability to dispose a certain portion in case of emergency. This investment objective means that one is considering investments that are near liquid in order to have cash when an emergency arises. In this case the person can invest either on money market investments or stock market. Investing in real estate is not amenable to carrying comfortable liquidity position. I know a friend who bought a cash generating business as a way of preserving a comfortable cash position.
5. Another person may be investing with an objective of retiring early and so desires to create investments that will continue to grow both in value as well as being able to continuously generate a positive cash flow to fund the retirement. Either a business that can be listed or real estate investments can meet this investment objective.
From the above examples of investment objectives it is clear that whatever objective you have will shape your strategy. Or put another way your strategy for investing should be in alignment with your objectives. One does not need to have only one objective- it is possible to have an objective of both growing wealth in long term while maintaining a good cash flow position at all times. I encourage you to sit down and think of your objectives in terms of investing and allow these to help shape your strategy.