What Financial Investment Methods Are Practiced By Firms?

There are several strategies that are used by financial investment firms that help their clients maximize their returns and minimize risks. These strategies are based on firm financial management principles and have been employed for years.  These methods, when used, provide you with safety and peace of mind. The standard methods include a buy and hold investment strategy, seeking total return for your portfolio and using diversification and asset allocation. Each of these methods provide a way to balance risk and increase the potential for higher investment returns.

Buy and Hold Strategy

A buy and hold strategy takes a long-term look at the market when decisions are made to purchase certain investments. Firms employing this method look for investments with good growth potential and are stable.  These investments provide good value for the investor and tend to hold up well during market upswings and downturns.

Buy and hold looks for investments that are less likely to react negatively to bad economic times. These investments provide income and are the type that do well in a good economy, and hold most of their value when the market is down.

Total Return Investment Strategy

A firm looks at investments, and sets standards of reasonable return rates. With a total return investment strategy, the goal is to combine those investments that help the firm achieve that total return consistently and provide maximum profits.

Diversification and Asset Allocation

Diversification seeks to mix investment types that are not related to each other in order to balance the risks of investing. Asset allocation is the process of choosing that mix based on a strategy of growth, income and safety or principal.

When a firm diversifies their investments, they vary the proportion of stocks, bonds, real estate and cash in order to achieve a balanced mix.  The weighing of this mix of stocks, depends on the returns that the firm seeks and the state of the market at any given point.  This balancing act is done through asset allocation, which is determined by assessing the firm and their client’s risk tolerance and investment objectives.

A firm that employs these methods takes a professional look at investing, as oppose to reacting to trends and moving in and out of investment types, tend to be more successful in reaching their investment goals.  It is important to note that no one investment strategy can guarantee success as all investing carries with it a degree of risk, including the possibility of loss.

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