What is the best investment strategy for beginners?

(This article is NOT investment advice) ‍

Investing can seem complicated at first glance, especially for beginners. But once you dive into the basics, you'll find that it's possible to start with smaller amounts and gradually increase your investment. It is important to note that each investment strategy has its own specific risk as well as its potential for return. Therefore, in this article, we will introduce you to some basic investment strategies that can be useful for long-term investing.

To begin with, it should be remembered that there is no one universal strategy that suits everyone. Each investor should consider their options, time horizon and willingness to take some risk. The strategies presented will help you understand the different approaches to investing and inspire you to choose the one that suits you best.

Conservative investment strategy

This approach is ideal for those who want to minimize risk and secure stable returns. Conservative forms of investment are mostly focused on safe financial instruments, which, as a rule, are not subject to large market fluctuations.

• Examples: Government bonds, savings accounts, pension funds.
• For whom it is suitable: This strategy is suitable primarily for storing money. Do not expect significant appreciation in this way. But in the long run, you should protect yourself from inflation. Or at least reduce its effects. Thus, the strategy is suitable for investors who want to be sure that their money will remain safe, even at the cost of lower returns.

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According to October surveywhich was published by ČTK, is For 80% of Czechs, property ownership is the most interesting option for the appreciation of money. This is followed by land (72% of respondents) and savings accounts (54%).

Equity investing in growth companies

This strategy focuses on assets that are typical of their considerable growth potential. While the returns can be high, it also brings with it higher risk. Among the most famous representatives of these assets are, of course, stocks. More alternative-oriented investors are increasingly diversifying their portfolios through cryptocurrencies, for example.

• Example: Investment in technology firms, start-ups, innovative companies.
• For whom it is suitable: For investors who are willing to accept higher risk and invest for the long term with the hope of high profits.

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Dividend strategy

This strategy is aimed at investing in the shares of companies that regularly pay dividends. That is, part of the company's profit, which is distributed among the shareholders. Dividends provide a stable income that is great for diversifying and protecting your portfolio.

• Example: Shares of large and stable companies such as Coca-Cola, Johnson & Johnson.
• For whom it is suitable: Typically for investors of advanced age with a shorter investment horizon who want to see the results of their efforts in the stock market practically immediately.

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Value investing in stocks

Investors in stocks often look for so-called undervalued stocks. Companies whose price is less than their fair value. This strategy is often associated with old-school investors such as Warren Buffett.

• Example: Buying shares of companies that are currently going through a crisis but have the potential to recover.
• For whom it is suitable: For patient investors who are willing to invest in long-term growth. They trust these companies for the long term and expect their investments to appreciate significantly over the horizon of ten years or more.

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Passive investment strategy

Passive investing is a great option for stock market beginners who don't want to spend hours watching the markets. This strategy consists of buying index funds or ETFs (exchange-traded funds) that track the performance of the entire market or a specific sector.

• Example: Investing in an S&P 500 index fund.
• For whom it is suitable: For investors looking for a simple and long-term way to invest in the stock market at lower costs.

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Investing in real estate

Investing in real estate can be a great long-term strategy that not only generates rental income, but also offers potential property appreciation over time.

• Example: Purchase of an apartment or house for the purpose of renting.
• For whom it is suitable: For investors who have more capital and want a stable income and growth in the value of the investment.

Until recently, real estate investments had one major drawback over the other named strategies. For investors with small capital, they were simply unattainable, possibly at the cost of a lot of risk associated with having to take out a loan (e.g., a mortgage).
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But that changed in 2019 with the arrival of the Investown platform, which made real estate investment accessible to a wider public. Group investing in loans backed by real estate represents a trade-off for beginners who might not otherwise have access to direct real estate investments. It offers the possibility of evaluation without having to worry about managing them, which makes it an attractive compromise. Investors only lend money for a fixed yield and do not have to worry about whether the property itself will be profitable.‍

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Bonus tip: Diversification

The basic principle of diversification is to spread your investments across different sectors, assets and markets to reduce any potential risk. If one investment loses significantly in value, others can offset the decline. Whichever way you decide to invest, you should never forget this principle. Protects your portfolio for the long term.

• Example: Distribution of investments between stocks, bonds and real estate or between different sectors (technology, health, finance).
• For whom it is suitable: All investors unconditionally.

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What to take away from today's article?

‍Each investment strategy has its advantages and disadvantages. It is important to set a clear goal and consider your tolerance for risk. An equally important factor is the time horizon of your investment. Whatever approach you choose, never forget to diversify your portfolio. And remember that patience and properly set expectations are key to long-term success.