Do you know which investing style suits you best? If you haven’t thought about it, maybe it’s the time to figure it out. Understanding the 6 major investing styles will help you decide how to shape your portfolio.

1. Active Investing

Active investing refers to an investment strategy where investors actively make buying and selling decisions in an attempt to outperform the market. It involves conducting research, analyzing trends, and making frequent adjustments to the investment portfolio.

2. Passive Investing

Passive investing, the opposite of active investing, focuses on the market’s long-turn returns instead of trying to beat the market. Passive investors often seek strategies that can generate reliable income or consistent returns over an extended period.

3. Growth Investing

Growth investing is interested in companies that are expected to experience above-average revenue and earnings growth. Investors seek companies with strong potential for expansion, often in emerging industries or with innovative products or services. The primary objective is capital appreciation, and growth investors are willing to pay a premium for stocks with high growth prospects.

4. Value Investing

Value investing is a strategy that aims to identify stocks that are trading at prices lower than their intrinsic value. Value investors seek companies that they believe are priced lower than their true worth, based on factors such as earnings, assets, or cash flow. The goal is to buy stocks at a discount and benefit from their subsequent price appreciation.

5. Market Cap Investing

Market cap investing focuses on investing in companies based on their market capitalization, which is the total value of a company’s outstanding shares. Investors may choose to invest in large-cap (like those biggest market cap companies), mid-cap (medium-sized companies), or small-cap (smaller, potentially higher-growth companies) stocks based on their investment objectives.

6. Dividend Investing

Dividend investing focuses on investing in companies that regularly distribute a portion of their profits to shareholders as dividends. Dividend investors seek stocks with a history of stable or increasing dividend payments. The primary objective is to generate a steady income stream from dividends, although capital appreciation is also a consideration.

Determine Your Investing Style

You will need to consider your risk tolerance before choosing an investing style. Risk tolerance can typically be classified into 3 levels: conservative, moderate and aggressive.

• Conservative: Conservative investors prioritize capital preservation over significant investment gains. They prefer stable, low-risk investments such as government bonds, high-quality corporate bonds, or cash equivalents. Conservative investors prioritize the safety of their investments and are willing to accept lower potential returns in exchange for reduced volatility and downside risk.
• Moderate: Moderate investors aim to strike a balance between capital preservation and growth. They are willing to accept a certain level of market fluctuations and volatility in exchange for potential higher returns. Moderate investors often diversify their portfolio by investing in a mix of stocks and bonds, including a combination of blue-chip stocks, diversified mutual funds, and investment-grade bonds.
• Aggressive: Aggressive investors are willing to accept significant market volatility in pursuit of higher potential returns. They are comfortable with short-term fluctuations and are willing to invest into higher-risk asset classes such as penny stocks, emerging market equities, or speculative investments.

If you are still not sure of your risk tolerance, taking an online risk tolerance assessment or questionnaire is one way to figure out which investing style might suit you best.