Looking for Ways to Diversify Wealth? Here are 8 Investment Strategies That can Help

Looking for Ways to Diversify Wealth? Here are 8 Investment Strategies That can Help
Cover Image Source: A man looks at a graph representing FTSE 100 share index | Getty Images | Photo by Peter Macdiarmid

A guide to diverse investment avenues

The logo for the Bitcoin Spot ETF's is displayed at the Nasdaq Exchange | Getty Images | Photo by Stephanie Keith
The logo for the Bitcoin Spot ETF's is displayed at the Nasdaq Exchange | Getty Images | Photo by Stephanie Keith

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When it comes to investing, there are numerous strategies for growing wealth and securing financial stability. From the steady income of dividend stocks and the relative safety of bonds to the higher risks and rewards of stock trading, the investment landscape offers a multitude of options. Strategies like investing in index ETFs, employing robo advisors, or diving into real estate present unique opportunities and challenges. Whether you are a seasoned investor or a newcomer, exploring these strategies can provide valuable insights for building a robust and diversified investment portfolio.

1. Invest in an Index ETF for the long term

Alkali Fintech LLC Bryce Todd attends as Gen Z Team launches the first ever GEN Z centered ETF (ZGEN) | Getty Images | Photo by Bryan Bedder
Alkali Fintech LLC Bryce Todd attends as Gen Z Team launches the first ever GEN Z centered ETF (ZGEN) | Getty Images | Photo by Bryan Bedder

 

Investing in Index ETFs is a proven long-term strategy for stock market gains. Historically, markets like the NASDAQ 100, S&P 500, and DJIA have shown significant profits over 20-year periods. Passive index-tracking funds, particularly popular in the USA and Europe, offer diversification, low fees, and simplicity. They account for 45% of US stock-based fund assets. This approach suits investors seeking low-risk, low-effort opportunities though it doesn't protect against market downturns.

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2. Use an automated robo advisor

Traders work on the floor of the New York Stock Exchange | Getty Images | Photo by Michael M. Santiago
Traders work on the floor of the New York Stock Exchange | Getty Images | Photo by Michael M. Santiago

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Utilizing robo advisors, automated investment platforms owned by major firms like Vanguard and Morgan Stanley, is a straightforward method to profit from the stock market. These algorithm-driven systems construct portfolios based on individual risk profiles and preferences, employing the Modern Portfolio Theory. With lower costs and fees compared to human advisors, robo advisors managed over $500 billion globally in 2022. However, most do not aim to outperform the market but provide automated, personalized investing. Evaluating their performance is challenging as different advisors vary in cash holdings, impacting exposure to market fluctuations and inflation.

3. Invest in value stocks long term

Investors observe stock market at an exchange hall in Beijing, China | Getty Images | Photo by VCG
Investors observe stock market at an exchange hall in Beijing, China | Getty Images | Photo by VCG

 

Warren Buffett advocates value investing as the most lucrative stock market approach, reflecting his remarkable 50-year success. Emphasizing criteria like fair value, margin of safety, robust earnings per share growth, consistent return on equity and conservative financing, Buffett's methodology involves screening for profitable companies with healthy cash flow. The detailed process, outlined in "The New Buffettology" by Mary Buffett, incorporates Benjamin Graham's principles. Employing a value investing strategy minimizes risk through undervalued stock selection and comprehensive analysis although it requires more effort than index investing or robo advisors.

4. Invest in growth stocks

A trader is reflected in a market screen on the floor of the New York Stock Exchange (NYSE) | Getty Images | Photo by Spencer Platt
A trader is reflected in a market screen on the floor of the New York Stock Exchange (NYSE) | Getty Images | Photo by Spencer Platt

 

William J. O'Neil's CANSLIM method, detailed in his book "How to Make Money in Stocks," is a strategic approach for achieving superior stock market gains. This method involves a blend of fundamental and technical analysis, focusing on seven key criteria: current earnings, annual earnings, new products or management, supply and demand, leaders, institutional ownership, and market direction. Implementing CANSLIM can be efficiently done using tools like Stock Rover's premium service, which offers a specific CANSLIM screener.

5. Dividend investing

Stock market numbers are seen displayed at the New York Stock Exchange | Getty Images | Photo by Michael M. Santiago
Stock market numbers are seen displayed at the New York Stock Exchange | Getty Images | Photo by Michael M. Santiago

 

Dividend investing is ideal for those seeking stable income, potentially exceeding bond returns, by earning from stocks without selling shares. It focuses on companies with a history of paying and increasing dividends, like Dividend Kings or Aristocrats. Using a stock screener like Stock Rover, which has a comprehensive 10-year database, investors can identify stocks with a consistent record of dividend growth. Criteria include a dividend yield over 1.5%, increasing dividends over 1, 3, 5, and 10 years, a payout ratio between 10% and 40%, and a sales growth average above 4%. Stock Rover simplifies this strategy, providing tools and screeners to efficiently manage a dividend portfolio.

6. Trading stocks

The interior of the Russian Trading System Stock Exchange (RTS) | Getty Images | Photo by Dima Korotayev
The interior of the Russian Trading System Stock Exchange (RTS) | Getty Images | Photo by Dima Korotayev

 

Trading stocks offers a high-risk, high-reward approach for investors aiming to maximize profits. Methods like day trading, swing trading, momentum trading and scalping demand substantial learning efforts. While numerous educational resources like books, videos and podcasts are available, success requires serious dedication and a cautious approach. Trading is considered the quickest way to profit but is equally the fastest route to losses, emphasizing the importance of strategic, informed decision-making.

7. Investing in bonds

 A tour bus passes the Wall Street bull | Getty Images | Photo by Spencer Platt
A tour bus passes the Wall Street bull | Getty Images | Photo by Spencer Platt

 

Bonds offer a more conservative investment strategy compared to stocks, suitable for those seeking steady, lower-risk returns. They are essentially loans to governments or corporations, paying back interest over time. Bonds are less volatile than stocks, making them an attractive option for risk-averse investors or those nearing retirement. While the returns are generally lower than stocks, the stability and predictability of bonds provide a cushion against market fluctuations. Diversifying a portfolio with a mix of bonds and stocks can balance risk and reward.

8. Real estate investments

A real estate sign is seen at a property in Croydon Park | Getty Images | Photo by Lisa Maree Williams
A real estate sign is seen at a property in Croydon Park | Getty Images | Photo by Lisa Maree Williams

 

Real estate investing is a popular way to build wealth over time. This strategy involves purchasing properties to generate rental income or selling them for a profit. It's attractive due to the potential for steady cash flow, property value appreciation, and tax advantages. Unlike stocks and bonds, real estate is a tangible asset, offering a sense of security. Investors can choose from residential, commercial, or industrial properties, or even real estate investment trusts (REITs) for those preferring a hands-off approach.

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