This is my attempt at a simple explanation of the different types of retirement investment strategies. I will write more in-depth articles on each of these topics soon. Most people suggest the younger you are the more growth stocks you should have and moving toward income investing as you near retirement.
The freight train, slow to get moving, but unstoppable once at full speed. Considered by many to be the most conservative type of investing, it is considered one of the safest ways to amass wealth over the long-term. Many people think of this method only used by people at retirement age, but that is not the case. The key idea behind this investment strategy is that all of your investments generate some type of income. This includes bonds, stocks paying dividends, and master limited partnerships. You will find traders moving to this type of investment strategy in a down market because they know they will get x% return on their portfolio.
Easy to comprehend, but it takes a lot of number crunching. Think Warren Buffet for this one, it is his specialty. The idea of value investing is looking for a stock that is undervalued by the market. To do this type of investing you must do technical analysis of the stocks income statements, balance sheets, and cash flows. (The good information is in the cash flows). Most value investors start with the price to earnings ratio (P/E ratio) when deciding if it is worth it to dig further into the financial statements of the company. Generally, you want to compare the P/E ratio of all companies in a sector as a starting point.
Looking for the home run. The big winners of the stock market, but some say playing the lottery. This strategy is focused on buying small to medium companies in the United States or stocks in emerging markets (Brazil, Russia, China, India..etc). You can think of tech stocks before the bubble burst. This is a method that many people like, I can understand it, I have bought stocks that have double in price in a few months. I have also bought stocks that have lost half their value in a day. (Netflix) As with all investing, big returns are shackled to big risk.
So, which retirement investing strategies is the best? It depends on who you ask, but I can guarantee you will never get the same answer. What is my advice? Simple, invest in a way where you can sleep it at night. Learn where your risk tolerance is and stay within your comfort zone. The only way to loss is to not save and invest for the future.