Developing an investment strategy with shares

Below is an easy to follow process to help you develop your investment strategy. Creating a clear strategy can give you direction and help to achieve your investment goals quicker.

• Establish your objectives
• Determine a timeframe
• Allocate asset classes
• Set investment parameters
• Create a risk management plan
• Inform your decisions
   

Establish your objectives

As with any strategy it is important to establish clear and achievable objectives from the beginning. Make sure to consider what your appetite for risk is and implement it into your objectives. Investment objectives should be based around factors such as targeted income, capital growth and returns.
 

Determine a timeframe

A timeframe should be created for achieving your financial objectives. The level of risk you are willing to accept is useful for determining the length of your timeframe. Investors with longer timeframes can generally accept greater risk as they have the capacity to bounce back from short-term market fluctuations. Whereas an investor with a shorter timeframe, may need to exercise greater caution in their security selection.
 

Diversification and asset allocation

Diversifying across a range of securities, industry sectors and asset classes may help reduce the volatility of investment returns.  Your asset allocation will be dependent upon the nature of your investment objectives and timeframe. Strategies seeking higher returns over a short timeframe may be skewed heavily towards a particular asset class or industry sector, which may also result in increased volatility of returns. Whereas a more diversified asset allocation may have less volatility.

Asset allocations should not be viewed with a ‘set and forget’ mentality. Changes in economic forecasts, interest rates and regulation, amongst many other factors, may impact on the ability to achieve your objectives.  It is important to regularly review the weightings of your portfolio to ensure they are appropriate for your investment strategy.
 

Set investment parameters

Setting investment parameters means deciding upon what you will and what you will not invest in. Having a well-defined approach will allow you to focus on opportunities best suited to your investment objectives. These parameters may involve only investing in blue chip companies or energy stocks. Again, you should look to reconsider these parameters over time as you refine your strategy.
 

Create a risk management plan

A risk management plan should be implemented across all stages of your investment strategy. You need to identify which risks you are susceptible to and develop a plan to mitigate those risks if need be. It is one thing to have a risk management plan and another thing to stick to it. Refer to our Risk and volatility management page for more info.
 

Inform your decisions

As an investor you have access to countless resources, tools and information regarding investment opportunities. Your decisions should be guided by an informed understanding and if you do not feel confident in your decision you can always seek professional advice. Below is a list of a few resources available:

• Economic research
• Financial planners or advisers
• Market and industry research
• Company and stock market analysis
• Watchlists and alerts