The best investing strategies are not always the ones that have the greatest historical returns. The best strategies are those that work best for the individual investor’s objectives, risk tolerance, and, yes, even tax strategy. In different words, investing strategies are like food diets: The best strategy is the one that works best for you.
Also, you don’t want to implement an investment strategy and find that you want to abandon it for some hot new trend you discovered online. Don’t get confused by all of the too-good-to-be-true flavors of the month. Stick to the time-tested basics.
To use another familiar metaphor, investing styles and tactics are like the clothes that fit you best. You don’t need anything expensive or tailor-made; you need something comfortable that will last a long time, especially if your investment objective is long-term (10 years or more).
Fundamental Analysis
We begin with fundamental analysis because it is one of the oldest and most basic forms of investing styles. Primarily used for researching and analyzing equities (individual stocks, rather than mutual fund selection), fundamental analysis is a form of an active investing strategy that involves analyzing financial statements for the purpose of selecting quality stocks.
Data from the financial statements is used to compare with past and present data of the particular business or with other businesses within the industry. By analyzing the data, the investor may arrive at a reasonable valuation (price) of the particular company’s stock and determine if the stock is a good purchase or not.
Technical Analysis
This is a tool that can be considered the opposite of fundamental analysis. Investors using technical analysis often use charts to recognize recent price patterns and current market trends for the purpose of predicting future patterns and trends. In different words, there are particular patterns and trends that can provide the technical trader certain cues or signals, called indicators, about future market movements.
For example, some patterns are given descriptive names, such as “head and shoulders” or “cup and handle.” When these patterns begin to take shape and are recognized, the technical trader may make investment decisions based upon the expected result of the pattern or trend. Fundamental data, such as P/E ratio, is not considered in technical analysis where trends and patterns are prioritized overvaluation measures.
Value Investing
Mutual fund and ETF investors can employ the fundamental investment strategy or style by using value stock mutual funds. In simple terms, the value investor is looking for stocks selling at a “discount;” they want to find a bargain. Rather than spending the time to search for value stocks and analyze company financial statements, a mutual fund investor can buy index funds, Exchange Traded Funds (ETFs) or actively-managed funds that hold value stocks.
Growth Investing
As the name implies, growth stocks typically perform best in the mature stages of a market cycle when the economy is growing at a healthy rate. The growth strategy reflects what corporations, consumers, and investors are all doing simultaneously in healthy economies–gaining increasingly higher expectations of future growth and spending more money to do it. Again, technology companies are good examples here. They are typically valued high but can continue to grow beyond those valuations when the environment is right.
If you or your clients have any tax issues or problems with the IRS/State or other federal tax problems, please feel free to contact me directly at (909) 570-1103 or by email at Carlos@HealthcareTaxadvisor.com
Carlos Samaniego, EA
Enrolled Agent
Licensed by The Department of Treasury to represent taxpayers
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Redlands, CA 92374
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