What's Your Money Style?
October 14, 2009 by Matt Swayne | Category: Investing
You can show your style in a lot of ways.
It's how you dress. It's how you arrange your furniture. It's the car you drive. It's how you invest.
Wait a minute... Do you have an investing style?
Everybody has an investment style. (And, like some of the fashion clueless, there are lots of people who have no money style at all.)
Your investment style is based on your risk tolerance, your desire for returns, and the time you have to spend in researching and executing your investment plan. Although the variations of investment styles are almost as endless as the number of investors there are some basic financial philosophies that you can investigate when determining your own approach to money.
Buy and Hold
The simplest investment style is "buy and hold." Investors purchase stocks (or other assets) that they believe will increase in price over time. There is little to track and trade for buy and hold investors. The goal is for initial research to spot stocks that will increase consistently over time.
Day Trading
Day trading is the polar opposite of buy and hold investing. Day traders expect to make sudden price fluctuations. While day traders may not do extensive research on a stock, they usually spend hours in front of a computer screen waiting for opportunities to buy or sell. The risk that a trade could go against a day-trading investor is higher than buy and holders, but the possibility of high returns are high, as well.
Trend Investing
Trend investors are philosophically between Buy and Holders and Day Traders. Essentially a trend investor looks for a stock that will head in a certain direction--up or down--over an indeterminate time period. The trend trader will probably not make multiple trades each day; nor will they hold a stock for a lifetime. Risk and return levels are somewhere between the buy and hold and day trading strategies. The research and trading time is more involved than the buy and holder, but less than the day trader.
Choosing a money style, then, is a matter of matching up your risk tolerance and return needs with the time and effort you can put in. For example, if you work 12 hours a day and have a strict budget, you might want to start with a buy and hold strategy. If you have some cash to spend (or fritter away), a day trading strategy might interest you.
In a future post, we'll discuss how you can build a money style pyramid.
Matt is the marketing director at Online Investing AI (http://www.onlineinvestingai.com), a company that is developing automated trading strategies for individual investors based on solid investment principles and advanced artificial intelligence technologies.
