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What is Your Investing Style?
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Josh (He/Him)
Financial Education Intern
Posted June 21, 2022
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When you’re beginning to invest it is important to know what your style is. It is better to figure out what you can handle before you begin investing. I will introduce a few styles that might match with your investment goals.
Active vs. Passive
As an investor you should consider if you prefer active or passive management of your portfolio. If you would prefer a professional money manager to handle your investments, you would like active management. An actively managed fund usually has a full team researching and seeking to gain great returns for investors. While this comes with more guidance, the cost typically increases as well. Passive management can save in fees and other expenses, but requires you to do most of the work and research.
Risk vs. Reward
Market cap, or market capitalization, is the amount of shares of stock a company has outstanding multiplied by the share price. The market cap will determine whether a company is a small cap or large cap company. Small cap companies have the potential for greater returns, but that comes with great risk. As an investor in small cap companies you must be comfortable with greater risk in order to tap into potential greater returns. Large cap companies are for risk averse investors. There is a greater sense of comfort with large cap companies because they tend to be more dependable. These companies may not grow as quickly as small cap companies because they are already so large. Investors can expect lower returns than small cap companies, but less risk. A few examples of small cap companies are Turtle Beach Corporation and Citi Trends. Large cap companies are Apple, Microsoft, and Google.
Risk Tolerance
Investing based on your risk tolerance is another great style. There are three different risk levels in investing; conservative, moderate, and aggressive. Conservative investment styles are focused around income and fixed income instruments. These investments could include money market funds, loan funds, and bond funds. Moderate investors look to invest in large cap stocks that have steady dividend payouts. Moderate investors also are attracted to value stocks, which is buying strong firms at a good price. Finally, aggressive investors look to invest in aggressive growth fund, hedge funds, global securities, and more. Aggressive investors are drawn to this style because these managed funds are mostly seeking to outperform the markets benchmarks.
Sources:
https://www.investopedia.com/terms/i/investing_style.asp
https://www.investopedia.com/financial-edge/0410/6-investment-styles-which-fits-you.aspx
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