Investors have several investment strategies from which to choose. Each investment strategy is built around a certain risk tolerance and investing goals. These strategies include: investing for income, buying and holding, investing for growth, value investing, and market timing. Investing for income focuses on getting the highest yield, or income from securities, which is calculated by dividing the dividend or income by market price. This is a good strategy for an older person seeking long-term income to finance retirement or for a parent who wants to fund a child's college education. An investor might be advised to buy low-risk securities that have predictable payouts such as bonds, or blue-chip stocks that also pay a dividend. In the buying and holding investment strategy, a person invests in a diversified and broad range of securities. The investor leaves them alone to accumulate wealth over time. Buying and holding is suitable for anyone who is able to invest for several years and patient enough to ride out the inevitable volatility of the market. Finally, owners’ equity represents the value of a firm via investments made into it and the generated earnings that are either taken out or retained by the firm. The expectation is that the stock price will increase rapidly. Investing for growth involves considerably more risk because the stock prices tend to be more volatile, as price fluctuates based on changes in the growing market. When engaged in value investing, investors try to find stocks that are undervalued in the market, believing that other investors will eventually buy these stocks, thus increasing their market value and driving up the stock's price. Value investing works best for active investors who research and analyze the market trends. Investors who wait too long to buy an undervalued stock may find that the price has already increased, which means that they missed the opportunity. Market timing is best suited for highly active investors that have a high risk tolerance and a familiarity with the various tools used to tracking stock prices. The final investment strategy is market timing. It is the riskiest tactic because it requires constant attention to stock prices. Investors should carefully consider all investment strategies to determine the best course of action. To determine the appropriate strategy, an investor should always consider his or her risk tolerance and financial goals.

Typically, an investor who uses the investing-for-income strategy would be how old?

Multiple Choice

  • 18–65

  • All investors use this strategy.

  • 65 and older

  • 30–55

  • 18–30

Which types of investment products typically are used in an investing-for-income strategy?

Multiple Choice

  • stocks

  • stocks and bonds

  • All of the answers are correct.

  • bonds and certificates of deposit

  • None of the answers are correct.

If an investor believes a particular investment is priced lower than it will be in the future, this is considered which type of investment?

Multiple Choice

  • strong buy

  • None of the answers are correct.

  • market timing

  • good deal

  • value

Which term identifies the concept that investors need to purchase investments in which they can feel comfortable?

Multiple Choice

  • market timing

  • comfort investments

  • risk tolerance

  • risk return tradeoff

  • buy and hold strategy

Public Answer

K7EETL The First Answerer