What Are Different Investing Strategies?

An investment strategy is a defined approach for choosing and managing investments in a portfolio. Each strategy is built around a different goal, such as growth, income, value, stability or social impact. For example, value investing focuses on finding stocks that may be trading below their intrinsic worth, while growth investing looks for companies with strong potential to expand over time.

A financial advisor can also help you create an asset allocation that supports your overall investment plan.

How to Choose an Investment Strategy

There are a number of factors that go into choosing the investment strategy that will work best for you. One thing is to think about whether you want to choose an active or passive investing strategy. Active investing involves the frequent buying and selling of stocks. It requires hands-on management, often by a portfolio manager who can delve into various factors to forecast the market.

Passive strategies, on the other hand, are focused on buying and holding investments for the long haul. Proponents of passive strategies argue this cuts down on trading costs and increases tax efficiency. It also tends to be less risky than market-timing strategies, which can reap big rewards by trying to beat the market but also suffer big losses. Oftentimes, portfolios blend active and passive investing.

Other factors you need to consider are your time horizon. How close are you to major life events like buying a house, having children, or retiring? If you need income soon, you may not want to select long-term investments. Your risk tolerance is another consideration. Generally, you can tolerate more risk early in your career, and desire less risky, more stable investments as you move toward retirement. A strategy like income investing, which is based on generating a steady income, might be less risky than a more subjective strategy like value investing.

Investment Strategies Compared: Which One Fits Your Goals?

Investment strategies differ based on how much risk you’re willing to take, how long you plan to invest and whether you want growth, income or values-based alignment. The table below compares common strategies and the types of investors they may fit best.

Investment Strategy	Primary Goal	Typical Risk Level	Best For	Potential Drawback
Growth investing	Capital appreciation	Higher	Investors with long time horizons who can tolerate volatility	Growth stocks can fall sharply if expectations change
Value investing	Buying undervalued assets	Moderate to high	Investors willing to wait for the market to recognize a company’s value	Stocks may remain undervalued for a long time
Income investing	Generating regular cash flow	Low to moderate	Retirees or investors who want dividends, bond interest or portfolio income	May offer less growth than equity-heavy strategies
Socially responsible investing	Aligning investments with values	Varies	Investors who want their portfolio to reflect environmental, social, religious or ethical priorities	May limit the investment universe
Small-cap investing	Long-term growth from smaller companies	Higher	Investors seeking growth potential outside large companies	Smaller companies can be more volatile and less established
Buy-and-hold investing	Long-term compounding	Moderate	Investors who want a simple, low-maintenance strategy	Requires patience during market downturns
Active investing	Attempting to outperform the market	Higher	Experienced investors or those using professional management	Higher costs, more trading and greater risk of underperformance

1. Growth Investing

Growth investing is an investment strategy that focuses on building capital through buying equities. This is most commonly found in stocks where investors believe the value of the company, and thus the value of the shares they’ve purchased, is likely to go up.

Growth investing contains several sub-strategies. Two of the most common are short-term investments and long-term investments. Short-term generally means buying stocks and holding them for less than a year. Investors use short-term growth investments when they think a company’s value is likely to shoot up quickly. Long-term investments, on the other hand, are held for more than a year. Investors use these when they believe the company’s value will grow slowly and steadily over the years.

Growth investing can touch on numerous sectors, such as:

Emerging markets
Tech
Energy
Aerospace

2. Value Investing

Value investing, an investment strategy championed by Warren Buffett, focuses on seeking out stocks that you believe are intrinsically undervalued. By finding companies the market does not properly value, investors have the potential to post big gains when the market eventually corrects and the company becomes valued properly.

3. Income Investing

Income investing focuses on generating a steady income from your investments. Rather than seeking stocks that will grow in value and give your portfolio more hypothetical value but make you no richer in terms of cash, income investing wants to find investments where your portfolio sees real-world value in the form of money in your pocket.

Income investments generally take two forms. The first is stocks that pay dividends. Some companies pay their investors a percentage of profits in the form of a dividend. That is cash that goes into your account if you own stock. The other most common type of income investing is bonds, which pay out on a consistent basis.

4. Socially Responsible Investing

The previous investment strategies focus more so on how an investor makes money. This investing strategy is a bit different in that it takes a broader look at how your investment can impact the world at large, beyond your investment portfolio.

You can tailor a socially responsible investing strategy to what you personally care about when it comes to social responsibility. If you are an environmentalist, for instance, you might invest heavily in green companies and avoid investing in companies that deal in fossil fuels. If you care about foreign policy, you might avoid companies that do business in certain countries.

Halal investing, investing done following Islamic principles, is another form of socially conscious investing. This means, among other things, not investing in companies that deal in alcohol, gambling or pork products.

5. Small Cap Investing

Small cap investing focuses on companies with a market cap, that is total value, between $250 million and $2 billion. This means you don’t invest in the companies that many investors focus on (think Apple, Ford, IBM, etc.) and instead in smaller companies you think could do well in the future.

Small cap companies often have few shares available for public purchase. Because institutional investors generally don’t want to own too big of a percentage of a company, they might shy away from the companies, giving individual investors a leg up.

6. Buy-and-Hold Investing

A buy-and-hold investment strategy involves finding investments that are likely to perform well over several years. Even when the market dips, this strategy holds steady on the belief that the investments will have a positive return over the long haul.

7. Active Investing

Active investing is much different than buy-and-hold as it focuses on riding the ebbs and flows of the market, making much more frequent trades. It can be very difficult to analyze the market effectively and active investors use a number of strategies to do just that. They focus on anything from trading based on events to setting up daily technical analysis to find potential quick returns.

Strategy by Life Stage

Your ideal investment strategy can shift significantly depending on where you are in life. As your goals, risk tolerance, and time horizon evolve, so should your approach to investing. Tailoring your strategy to your current life stage can help you maximize returns while managing risk appropriately.

In your 20s and 30s, you typically have the longest time horizon and the most flexibility to take on risk. This makes it an ideal time to focus on growth investing and small cap investing, which may offer higher returns but also come with greater volatility. Many analysts recommend a 70/30 asset allocation strategy at this stage, with 70% of your assets in equities and 30% in bonds.With decades to recover from market downturns, younger investors are well-positioned to prioritize capital appreciation.

In your 40s and 50s, retirement draws closer and financial responsibilities often increase. This is a time to balance growth with stability by incorporating value investing and income-producing assets like dividend-paying stocks or bonds. This approach allows for continued portfolio growth while reducing exposure to high-risk assets. Here, experts recommend a shift to a 60/40 split between equities and bonds. It’s a little more stable for investors who won’t have time to recover from any unexpected losses.

In your 60s and beyond, capital preservation and income generation become key priorities. Strategies like income investing, which focuses on generating reliable cash flow, can help cover living expenses in retirement. Many investors at this stage also turn to socially responsible investing as a way to align their portfolio with personal values and leave a meaningful legacy.

This is the age when you begin trending towards the most conservative strategies. A common suggestion is the “Rule of 110” which instructs retirees to subtract their age from 110, and use the subtotal as the baseline for the equity share in your portfolio. So a 75 year-old would allocate 35% of their portfolio (110-75=35) to equities and put the rest in bonds.

Adapting your investment strategy to match your life stage helps ensure your portfolio continues to support your financial goals over time

Bottom Line

There’s no easy way to pick which investing strategy you should choose when building your own portfolio. You might end up with a mix of sorts as you find that the right strategy for you involves multiple types of investment strategies. The best way to pick an investing strategy is to think about your financial and personal goals. Then figure out which strategy is most likely to help you achieve those goals. You can also enlist the help of a financial advisor.

Investing Tips

If you’re wondering what type of investing strategy is right for you or if you simply need help implementing it, you may find it helpful to talk to a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool can help with our free financial advisor matching service matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Not sure what the right mix of investments is for your portfolio? This asset allocation calculator can help you make the right choices for your portfolio based on your risk tolerance.