Navigating the world of investment strategies
Investors adopt different investment strategies, just as the heroes in Wuxia (Chinese warrior) novels employ different combat styles. Each strategy has its own unique strengths; the question is, how can the strategy be executed effectively?
Goal: To obtain interest returns as a main source of income. Regardless of market conditions, yield-chasing investors pursue a stable and regular stream of investment returns as their ultimate investment goal. In the prevailing low-interest-rate environment, interest-bearing assets become these investors' favourite choices.
High-dividend stock: Conventional wisdom tells us that utilities and telecommunication stocks tend to offer stable dividends, while Real Estate Investment Trusts (REITs) are safe bets for rental income. However, the risks involved in high-dividend stocks cannot be overlooked. As with all kinds of stock investments, high-dividend stocks are subject to the risk of price fluctuations, too.< /p>
High-dividend stock fund/high-yield bond fund: High-dividend stock funds primarily invest in interest-bearing assets, such as stocks with high-dividend payouts. This kind of fund usually distributes interest quarterly or even monthly, making them more suitable for investors seeking regular cash flow. Another type of mutual fund with attractive interest income is the high-yield bond fund. This kind of fund mainly invests in high-yield or emerging market bonds. Similar to high-dividend stocks, high-yield and emerging market bonds are subject to the risks of price fluctuations, and their default rates are higher than investment grade bonds in general. Investors should understand the risks before investing.
Goal: Capital appreciation as the major objective. Growth seekers emphasise asset price appreciations, that is, to grow the capital portion of their investments.
Growth stocks: Companies in emerging industries or industries in upward cycles have higher potential for growth and these stocks are wildly popular among growth-seeking investors.
Growth fund: This kind of fund commonly invests in stock markets with high economic growth (such as Asia) or industries with high growth potential. Growth funds aim to obtain a relatively higher investment return for investors.
Derivatives such as Callable Bull/Bear Contracts (CBBC) and options: Derivatives allow investors with limited capital to amplify returns by using leverage. However, investors may have to face larger investment risks, too.
The Conservative Party
Goal: To obtain stable returns.
Conservative investors are not after overnight big windfalls, but low-risk, sustainable and stable returns.
Fixed deposits: Investors can recapture the principal and earn interest when the fixed deposit matures. Fixed deposits also pay higher rates of interest than current accounts.
Certificate of Deposit: Certificates of deposit issued by banks usually offer an interest return higher than fixed deposits, thus it is a popular product among conservative investors.
Sovereign bonds: Sovereign bonds issued by developed economies such as the US, Japan and Hong Kong (for example, iBond) generally entail lower default rates. They are popular investment options in every conservative investor's toolkit.
Different Investment strategies, different strengths
Which strategy performs better? There is no straight answer to this question as their performances greatly depend on the prevailing market situation. The most important takeaway for investors is that they should understand their own needs, wealth management capabilities and risk tolerance in order to select the suitable investment strategy.
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