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How to create your own investing strategy in 5 simple steps

George Sweeney 30th Sep 2023 4 Comments

Reading Time: 6 minutes

If you’re new to the world of investing, or perhaps looking to sharpen up your portfolio, it’s worth taking the time to develop a solid strategy that’s unique to your goals. But how on earth do you do that?

In this article, I’ll explain what an investment strategy is, why it’s important to have one, and some simple steps for you to create your own plan.

Keep reading for a full explanation or click on a link below to jump straight to a section…

Rather watch than read?

Here’s a quick video overview of this article…

What is an investing strategy?

This is a blueprint you can use to guide your investing decisions at the beginning and throughout your time as an investor.

It can be an actual plan, or simply some guiding principles for you to refer to.

The key factors that normally play a big part in the development of your strategy are usually:

  • Time horizon
  • Goals
  • Risk tolerance
  • Financial knowledge

Why is it important to have an investment strategy?

Having a solid investing strategy is vital when starting your investment journey. But, it can also be extremely useful throughout your entire time investing.

A solid plan can act like a compass as you navigate the market and make decisions. If you stray too far from your original course, you can go back to your original strategy to help steer you back in the right direction.

Of course, your strategy may change over time. How you choose to invest in your 20s and 30s may not apply when you’re in your 50s or 60s.

So it’s not about being rigid. But it is about being intentional. Put simply, unless there’s been a change in your life or mindset, it’s really useful to have a plan.

This will allow you to make better decisions about what to invest in.

Gradually, you’ll get a better understanding of the types of assets that do and don’t fit in with the rest of your investment portfolio.

So, you’ll become more efficient with your investing decisions. And, it will reduce the odds of you making silly mistakes or impulse-buying the wrong kind of investments.

Worldwide opportunities that you may not have considered

 

What is a good investing strategy?

This will really come down to your own situation and preferences.

There are ‘model’ investing strategies that are designed for people at various stages in life.

But in truth, your strategy will be unique to you.

What works best will depend on your circumstances and what you actually hope to achieve with your investments.

Some people will just be looking to protect or maintain wealth, whereas other may be more aggressive in an attempt to build a decent pot of money.

There’s no right answer or perfect portfolio strategy. The best thing you can do is make sure you have a thorough understanding of your own needs and desires.

If you understand yourself, and what you want to get out of your investments, it becomes much easier to create an investing strategy. One that you will stick to, and allows you to reach your goals.

Woman on laptop looking happy

 

5 simple steps to create your own investing strategy

Here are some straightforward steps you can follow to set up a plan that you’re happy with.

1. Understand your finances

Before you even think about investing, you need to have a good grasp on your financial situation.

Make sure you’ve taken care of any expensive debts like credit cards, especially when considering the fact that 0% deals may not be around for ever. Also, have a realistic budget so that you know how much money you’re able to invest once you’ve covered your day-to-day expenses each month.

By starting out like this, you’ll get off on the right foot. It will be much easier to concentrate on your investments if you know the rest of your finances are in good health.

2. Think about your overall goals

What you want your end result to be can help dictate the rest of your investing structure.

Your time horizon for your investments will also play a part in creating your strategy.

For example, if your goal is to build long-term wealth over decades, you may choose to invest passively using index funds to benefit from compound interest.

Or, you may want to be aggressive, putting your money into growth shares in the hope of generating market-beating returns.

Your goals will be unique to you. So it’s important that your investing strategy reflects that. Otherwise, you’ll be wandering aimlessly with no sense of direction.

3. Be comfortable with your risk appetite

Your tolerance for risk will also play a big part in your decision process.

Whether you’ve got the stomach for risk and volatility will help you steer in the right direction. It will give you some insight when it comes to working out what investments may or may not work well within your portfolio.

This is something very personal to you. Just because you have lots of time on your side doesn’t mean you have to opt for higher-risk investments, and vice versa.

It’s all about what sits well with you.

If you hate the idea of losing money on paper, there’s no point picking volatile investments. Because, the price movements may end up keeping you up at night.

But, it is important to understand that with every type of investment, prices will fluctuate. If you want to get more comfortable with the idea of volatility, then you may wish to start your investing journey in the slow lane (and there’s nothing wrong with this).

4. Consider all your assets

When making investment plans, many people often forget about things like your pension or home.

It’s really important that your investment strategy sits in with the rest of your finances.

This could be as simple as trying to play it safer with your pension investments, and then being more adventurous with your stock portfolio.

Or, simply being aware that you may have a large amount of your net worth tied up in an illiquid asset (one that is hard to sell/convert into cash) like the house you live in.

Most people are massively overweighted in property with their total financial outlook because they own their own home, and maybe a second one, and the sheer value of that ‘property portfolio’ far outweighs the money they have in other investments.

So, when you’re creating your investing strategy, make sure you’re working out a plan that takes into account all of your financial assets.

5. Always be aware of diversification

Whichever way you choose to invest and whatever your final goals may be, diversification is always so important.

You might get lucky by throwing all your energy into one stock or asset. But, there’s a much greater likelihood you’ll fail by putting all your eggs in one basket.

Diversification can mean different things, there’s no such thing as a perfectly diversified portfolio.

But, keep in mind that you can still be aggressive or cautious and diversified at the same time. You can also get creative and even explore using alternative investments.

By spreading your investments across various assets, industries, and companies – you can give yourself a great shot at long-term success.

It will increase the chances of you pick winning investments, and should help minimise your losses when things turn sour.

choosing a diversity of investments on paper

 

What else should investors know about plans and strategies?

Creating your own investing strategy is very personal to you. If you want no part in the decisions whatsoever, you can always look at robo-advisor platforms.

But, if you want to be in control, that’s ideal. Just make sure you’re using a brokerage account that gives you access to all the types of investments you want to use.

Don’t follow the crowd and make investing decisions because that’s what other people are doing. Build a strategy and a portfolio that reflects your needs and values, then stick with it.

And, if you want to stay up to date with all the latest market news, make sure you sign up for the fortnightly MoneyMagpie Investing Newsletter.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

When investing your capital is at risk. Remember, the value of any investment can both rise and fall.

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Spike
Spike
1 year ago

Who wrote this? You missed out the most important part – Get professional advice before you spaff your entire savings on investments that you really know nothing about.

Isobel Lawrance
Editor
1 year ago
Reply to  Spike

Hi there, please note our disclaimer in the article: This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money. Thanks!

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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