3 Strategies to Choose the Right Investment

choose the right investment

There are dozens of ways to invest your money. Stocks, bonds, and real estate are probably the most well-known types of investments, but each is unique and presents its own range of risks and challenges. So how can you pick the best ways to spend your money? Try these three strategies to choose the right types of investment for your style.

Balance the Lengths of Your Investments

Some investments, like real estate, are better than a long-term purchase. Others, like day trading stocks, are bought and sold more quickly. A recommended strategy is to mix and match these types of investments. Consider the example of real estate and day trading.

Day trading is an especially volatile type of investment where you can lose a major portion of your account in a few hours โ€” or end the day with a huge gain. In contrast, real estate is an investment that more reliably and predictably grows over time.

You can balance investment types with a narrower lens, too. For example, traditional stock ownership typically involves holding onto your shares for as long as possible while they gain value.

Like real estate, being patient in this way is a good way to sit back while an investment grows. Then, if you want to be more hands-on with shares, you can pursue day trading, short selling, and other shorter-term trades to complement the more conservative parts of your portfolio.

Go by Price Range

In many cases, expensive investments are the most reliable or have the highest potential for returns. For example, real estate in a premium area will be priced accordingly, and companies that have a proven record of success will have more expensive shares than a startup that no one’s ever heard of. If you have a big budget, sticking to a higher price range can help you avoid some volatility, though all investments are risky.

Conversely, you can focus on a lower range due to budget constraints or to try and find investments that have the potential for explosive growth. For example, Penny stocks and other low-priced shares are known for their risk and volatility but can pay off if a company is acquired or quickly grows.

Prioritize a Certain Type of Stocks

If you’ve decided you’d like to invest in stocks, you must now decide which types of stocks are best for you. The best choice depends on your trading strategy โ€” i.e., whether you’re looking for something short-term or long-term or whether you want something low risk with a more predictable return or something high risk with the potential for a huge gain.

The two overarching types of stocks are common and preferred stocks. Common stock is the most well-known and represents a portion of company ownership. Preferred stock involves less company ownership but comes with the promise of guaranteed dividends.

All types of investments are risky, but some are more manageable than others. And some types of investments have a better potential for returns than others. Which is best for you depends on your goals and investing strategy. Remember to use the above strategies to help make the best investments for your own personal style.