Things to learn about Investment

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Investment strategy

 Investment strategy refers to a plan or approaches that an investor uses to make decisions about where and how to allocate their funds in order to achieve their financial goals. Here are some key steps to consider when developing an investment strategy:


1) Asset Allocation :

Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.


2) Diversification :

A diversified portfolio should be diversified at two levels: between asset categories and within asset categories. So in addition to allocating your investments among stocks, bonds, cash equivalents, and possibly other asset categories, you'll also need to spread out your investments within each asset category. The key is to identify investments in segments of each asset category that may perform differently under different market conditions.

The goal of diversification is to minimize the risk associated with investing by spreading investments across different types of assets. For example, an investor may choose to invest in stocks, bonds, real estate, and commodities in order to diversify their portfolio. By investing in different types of assets, the investor can minimize their exposure to any one asset class and reduce the overall risk of their portfolio.

3) Rebalancing :

Rebalancing is bringing your portfolio back to your original asset allocation mix. This is necessary because over time some of your investments may become out of alignment with your investment goals. You'll find that some of your investments will grow faster than others. By rebalancing, you'll ensure that your portfolio does not overemphasize one or more asset categories, and you'll return your portfolio to a comfortable level of risk.

While rebalancing can help to maintain a consistent risk level and potentially improve returns over the long term, it is important to note that it involves transaction costs and may result in tax implications. Therefore, it is important to carefully consider the costs and benefits of rebalancing before making any changes to an investment strategy.


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