Top 3 Investment Strategies to Know

By: Jennifer Brazer

Jennifer is the author of From Cubicle to Cloud and Founder/CEO of Complete Controller, a pioneering financial services firm that helps entrepreneurs break free of traditional constraints and scale their businesses to new heights.

Fact Checked By: Brittany McMillen

3 Money Investment Strategies Every Investor Should Know

Investment strategies that deliver consistent returns require mastering three core approaches that balance growth with security in today’s volatile markets.

When I work with clients seeking to build wealth, I see the same patterns repeatedly: those who succeed follow specific, time-tested methods rather than chasing market trends. Whether you’re just starting or looking to optimize your portfolio, these three strategies form the foundation of smart investing that works across market cycles.

What are the 3 most important investment strategies every investor should know?

• The three essential investment strategies are portfolio diversification, long-term buy-and-hold investing, and strategic risk management techniques.
• Portfolio diversification spreads risk across different asset classes, preventing catastrophic losses when one sector underperforms.
• Buy-and-hold investing harnesses the power of compound growth and avoids the costly mistakes of market timing.
• Risk management protects your capital during market downturns through protective measures like stop-loss orders and emergency funds.
• Implementing all three strategies creates a resilient portfolio that can weather market volatility while capturing growth opportunities.

Strategy #1: Master Portfolio Diversification for Stability and Growth

Smart diversification isn’t merely about owning different stocks—it’s about structuring your investments so they respond differently to market forces. As I’ve coached entrepreneurs through market cycles, I’ve seen firsthand how diversification serves as financial armor during volatility.

The classic investment advice “don’t put all your eggs in one basket” exists for good reason. When one sector struggles, others often thrive. Consider the 2022 tech sector correction, where investors with diversified portfolios weathered the storm while tech-heavy portfolios experienced significant drawdowns.

Effective diversification requires balance across

• Asset classes: Spread investments across stocks, bonds, real estate, and commodities
• Geographical regions: Include international markets to reduce dependence on US economic conditions
• Market capitalizations: Balance large, mid, and small-cap investments
• Sectors: Distribute investments across technology, healthcare, finance, consumer goods, and utilities

The power of diversification becomes most apparent during market stress. Research from S&P Dow Jones Indices showed that properly diversified portfolios reduced volatility by up to 31% during market corrections while maintaining 96% of potential returns during bull markets.

Actionable steps to improve your diversification

Start by analyzing your current allocation. Many investors believe they’re diversified when they actually have significant concentration risks. Here’s how to implement proper diversified portfolio management tips:

1. Audit your existing holdings for overlap and concentration (many mutual funds contain the same top holdings)
2. Set allocation targets based on your age and risk tolerance (younger investors can tolerate higher equity allocations)
3. Use low-cost index funds to gain broad market exposure efficiently
4. Incorporate alternative assets like REITs or commodity ETFs for uncorrelated returns
5. Rebalance quarterly to maintain your target allocations

What surprises many investors is that diversification isn’t just about reducing risk—it’s about optimizing returns across full market cycles. By maintaining exposure to multiple asset classes, you position yourself to capture returns wherever they emerge.

Strategy #2: Embrace Long-Term Buy-and-Hold Investing for Wealth Building

The buy-and-hold approach stands in stark contrast to active trading strategies that promise quick riches but often deliver disappointment. This strategy involves purchasing quality investments and holding them through market cycles, allowing compound growth to work its magic.

Market timing—attempting to buy low and sell high consistently—remains one of the most destructive behaviors I see among investors. Studies consistently show that investors who trade frequently underperform those who stay invested. According to YCharts data, missing just the 10 best market days over a 20-year period cuts your returns nearly in half.

The buy-and-hold investment approach delivers several critical advantages:

• Tax efficiency: Long-term capital gains receive preferential tax treatment
• Reduced costs: Fewer transactions mean lower commission costs and tax events
• Psychological relief: Less stress from constantly monitoring markets
• Compound growth: Uninterrupted compounding delivers exponential returns over time

Case study: The power of patient capital

One of my manufacturing clients provides a perfect example of buy-and-hold success. During the March 2020 market crash, many investors panic-sold as markets plummeted. My client not only stayed invested but added to their positions in quality companies at discounted prices.

By December 2021, their portfolio had grown by 87%, significantly outperforming peers who tried timing the market. More importantly, they captured the recovery without the stress of deciding when to reinvest.

The most compelling evidence for buy-and-hold comes from Warren Buffett’s approach. His famous advice—”Our favorite holding period is forever”—reflects the simple truth that quality businesses compound wealth over decades, not quarters.

For most investors, implementing buy-and-hold means:

• Selecting quality investments with sustainable competitive advantages
• Focusing on businesses with strong balance sheets and cash flows
• Ignoring short-term market noise and volatility
• Reinvesting dividends automatically to accelerate compounding
• Maintaining conviction during inevitable market downturns

Strategy #3: Implement Strategic Risk Management to Protect Your Capital

While diversification and buy-and-hold investing form the foundation of wealth building, strategic risk management protects that foundation. No investment strategy is complete without deliberate protection against market shocks and personal financial emergencies.

Risk management isn’t about avoiding all risks—it’s about taking calculated risks aligned with your financial goals while protecting against catastrophic losses. This distinction matters because excessive risk aversion can be just as damaging to long-term returns as excessive risk-taking.

The most effective risk management strategies for investment planning include:

Position sizing based on conviction and risk

Never allocate more to a single position than you can afford to lose. I recommend these guidelines:

• Core holdings (5-10% each): High-conviction, long-term investments
• Satellite positions (1-3% each): Higher-risk opportunities with growth potential
• Speculative investments (0.5-1% maximum): High-risk, high-reward opportunities

Implement protective stop-loss orders

Stop-loss orders automatically sell positions when they fall below predetermined thresholds, preventing emotional decision-making during market stress.

Research by Hsieh et al. found that portfolios using 15% trailing stop-losses outperformed buy-and-hold during bear markets while matching returns during bull markets. Consider placing stop-losses:

• 15-20% below purchase price for individual stocks
• 10-15% below purchase price for sector ETFs
• 25-30% below purchase price for broad market indices

Maintain adequate liquidity and emergency reserves

Market opportunities often emerge during economic stress. Without proper liquidity, you’ll be forced to sell at market bottoms rather than buy at attractive prices.

Your liquidity strategy should include:

• Emergency fund covering 3-6 months of expenses in high-yield savings
• Tactical cash reserves (5-15% of portfolio) for opportunistic investments
• Accessible credit lines as a last resort during extreme circumstances

Use options strategically for portfolio protection

While complex options strategies carry their own risks, simple protective strategies can safeguard portfolios during market volatility:

• Protective puts: Function as portfolio insurance during anticipated volatility
• Covered calls: Generate income while setting soft sell targets on appreciated positions
• Collar strategies: Combine puts and calls to create protected ranges for valuable positions

Tailoring Investment Strategies to Your Life Stage and Goals

Investment strategies aren’t one-size-fits-all—they must align with your age, financial goals, and risk tolerance. The strategies above form the foundation, but implementation varies significantly based on your life stage.

For young investors (20s-30s)

With decades until retirement, early-career investors benefit from:

• Higher equity allocations: 80-90% stocks, 10-20% bonds/alternatives
• Aggressive diversification: Including emerging markets, small-caps, and innovation sectors
• Maximum retirement contributions: Prioritizing tax-advantaged accounts for long-term investment strategies for retirement
• Dollar-cost averaging: Systematic investing regardless of market conditions

Young investors often make the mistake of excessive conservatism. Time is your greatest asset—embrace growth investments while you can weather volatility.

For mid-career investors (40s-50s)

With growing assets but still 10-20 years from retirement:

• Moderate allocation: 60-70% stocks, 20-30% bonds, 10% alternatives
• International diversification: 20-30% of equity exposure in international markets
• Tax-efficient location: Strategic placement of assets in taxable vs. tax-advantaged accounts
• Risk management: Begin implementing portfolio protection as assets grow

I often remind mid-career clients that this is their wealth accumulation prime—many make the mistake of becoming too conservative too early.

For pre-retirees and retirees (60+)

With income generation becoming paramount:

• Income focus: Dividend stocks, bonds, and income-producing alternatives
• Capital preservation: Higher allocation to fixed income (40-60%)
• Withdrawal strategy: Implementing the 4% rule or dynamic spending policies
• Tax-efficient liquidation: Strategic drawing from accounts to minimize tax impact

Integrating Alternative Investments into Your Portfolio

Beyond traditional stocks and bonds, alternative investments can enhance returns while reducing overall portfolio risk through investment planning and portfolio diversification. These alternatives become increasingly important in a low-yield environment for bonds.

Real estate investment opportunities

Real estate offers inflation protection and income potential through:

• REITs: Publicly-traded real estate investment trusts for liquid exposure
• Rental properties: Direct ownership for income and tax advantages
• Real estate crowdfunding: Fractional ownership of commercial properties
• Real estate debt: Higher-yield fixed income through property-backed loans

The JPMorgan 2025 outlook highlights housing shortages as a persistent investment theme, suggesting continued potential in residential real estate investments.

Private market investments

Once reserved for institutional investors, private markets have become more accessible:

• Private equity: Growth-stage companies before public offerings
• Venture capital: Early-stage companies with high growth potential
• Private credit: Direct lending to businesses at attractive yields
• Angel investing: Direct startup investments (limited to accredited investors)

These investments typically carry higher fees and liquidity constraints but offer potentially higher returns and lower correlation to public markets.

Applying These Strategies During Market Volatility

The true test of an investment strategy comes during market stress. The approaches outlined maintain effectiveness even during volatility when implemented properly.

During corrections or bear markets, focus on:

1. Rebalancing: Market declines create opportunities to rebalance toward target allocations
2. Tax-loss harvesting: Capture losses to offset future gains while maintaining market exposure
3. Strategic cash deployment: Use reserved cash to purchase quality assets at discounted prices
4. Maintaining discipline: Avoid emotional reactions that damage long-term performance

Remember that market volatility is the price we pay for higher long-term returns. The investors who maintain discipline during downturns position themselves for superior long-term outcomes.

FAQ

What investment strategy works best for beginners with limited capital?

For beginners, focus on building a simple foundation first. Start with low-cost, broad-market index funds through retirement accounts like 401(k)s or IRAs. Implement automatic contributions (even small ones) to benefit from dollar-cost averaging. As your knowledge and capital grow, gradually introduce individual stocks or sector ETFs as satellite positions around your index fund core. The key is starting early—even $100 monthly in a diversified index fund can grow significantly over decades.

How should I adjust my investment strategy during high inflation?

During high inflation, protect purchasing power by increasing allocation to real assets and inflation-resistant investments. Consider Treasury Inflation-Protected Securities (TIPS), which adjust principal based on inflation rates. Add exposure to commodities, real estate, and infrastructure assets that typically perform well during inflationary periods. Reduce allocation to long-duration bonds, which suffer most from inflation. Maintain healthy exposure to quality companies with pricing power that can pass inflation costs to consumers.

What’s the ideal portfolio allocation between stocks and bonds at different ages?

The traditional rule of thumb—subtract your age from 100 to get your stock allocation percentage—provides a starting point but needs modernization. With longer lifespans, consider using 110 or 120 instead of 100. For example, at age 40, this suggests 70-80% stocks and 20-30% bonds. However, personal factors matter more than age: your risk tolerance, income stability, and specific financial goals should drive allocation decisions rather than rigid formulas.

How can I implement these strategies with a full-time job and limited investing experience?

Automation is your best ally. Set up automatic contributions to index funds or target-date funds that handle diversification and rebalancing automatically. Use robo-advisors for low-cost, algorithm-driven portfolio management if you prefer more customization. Schedule quarterly reviews (just 1-2 hours) to assess performance and make adjustments. Focus learning efforts on understanding fundamental investment principles rather than stock picking or market timing tactics that rarely add value for non-professionals.

When should I consider hiring a financial advisor versus managing investments myself?

Consider professional help when your financial situation becomes complex—typically when you’ve accumulated substantial assets (over $250,000), face complicated tax situations, approach retirement, need estate planning, or feel overwhelmed by investment decisions. Look for fee-only fiduciary advisors who legally must act in your best interest rather than commission-based agents. Even with an advisor, maintain enough knowledge to evaluate their recommendations critically. The best advisor-client relationships are partnerships, not delegations.

Sources

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