Whether you are investing as part of a pension plan, investment ISA or simply buying stocks and shares, it's vital that you have a 'plan of attack' to help guide your investment - an investment strategy in other words.
But what makes a sound investment strategy?
Good investments balance the risks associated with investing with the potential rewards gained from investing. How you choose to balance that risk will often determine the kinds of investments that are suitable to your own needs.
If you have a high tolerance for risk - and are hungry for the big rewards - you may consider yourself a more aggressive investor. Someone nearing retirement on the other hand may take a more defensive or cautious approach to help ensure a viable annual income in retirement.
Defensive Investors
Defensive investors are concerned with maintaining the value of their investments over time - i.e. not losing. As a consequence a defensive investment portfolio might include lower risk investments like commercial property and high quality bonds with returns similar in nature to high-interest High Street deposit accounts.
Cautious Investors
Like defensive investors, cautious investors are not looking for the big gains associated with higher risk investments - they do however want better returns than what would usually be available through a High Street deposit account. A cautious portfolio might include some exposure to shares.
Balanced Investors
A balanced investor is likely to have a portfolio that is exposed to some degree of risk - say through individual stocks and shares - but is unlikely to fluctuate wildly in any given year.
Aggressive Investors
An aggressive investor is prepared to take bigger risks in return for potentially bigger rewards. They will be prepared for large fluctuations in the performance of their portfolios over a short period of time.
Of course, you could just as easily be a very defensive investor or a moderately aggressive investor - there are no hard and fast definitions. The first question is, "what do you want to achieve with your investments?" If you want to see big returns quickly, you'll need to be prepared to be more aggressive in your investments.
The second question is, naturally enough, "what is your appetite for risk?" Would you be prepared to lose money, and what would be the ramifications if your investments did lose value?
Whatever your goals or your risk profile, there is an investment strategy to suit your needs. Speak with your independent financial adviser and they should be able to help you develop a strategy and portfolio to meet your needs.
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