Various investment strategies available in the world of investing can be split into three broad categories. Once you go through these strategies it helps you in deciding which form or combination of forms will be best suited for you. Here are those three forms of investing with their pros and cons.
Passive Investing: In this form of investing, decision making for the investment is in others’ hands. The ideal one for this job is an expert investment manager. The big advantage in this method of investment is you don’t require investment expertise. You need to invest only money not time. The disadvantages are you don’t have control over your money for investing and the returns for such investments are uninspiring. Government bonds, savings accounts, mutual funds and property trusts are few common example of passive investing. These passive investments have some tax concessions that vary from country to country. People generally invest for retirement in passive investing.
Active Investing: In this form of investing you have to actively manage the investment. This type of investing is for long term as well as short term. Buy and hold shares are a long term investment while futures trading are a short term investment. To be successful in active investing, thorough knowledge about the various investment plans to be used is essential. The basic principles like timing to collect profits, cut losses and ways to analyze market are of utmost importance.
Larger control over the investments and higher profit potential are the advantages of active investing. Devoting more time and to have more skills in managing your investments are the disadvantages of active investing. When compared with passive investing, the chances of making loss are also higher. Investment in shares, futures, currency trading and property trading are the common examples in this category of investing.
Creative Investing: This type of investing requires huge amount of skill and experience. If you have them no one can stop you from making huge profits. It is all about turning your thoughts into money. Someone has rightly said those who have imagination can earn a lot. If you are a property developer you can put all imaginative ideas into the property to be developed to get ultimate out of it in terms of money.
Creative investing is the one which has highest profit potential along with maximum degree of flexibility and control. The drawbacks of this type of investing is you require specialized knowledge, the amount of money involved is huge and the chances of making large losses is high if things don’t move n the right direction. New product development and its marketing, property development, and renovation in properties are some common examples of creative investing.
Once you have the basic idea of all three categories of investing it is time to consider your knowledge and skills along with your strength and weaknesses to judge which form of investing is best suited for you as per your requirements.