Types of Investment Philosophies

DIfferent investment philosophies can provide multiple ways on how investments are made, planned, assessed and organized. Taking a look at these philosophies can assist future investors in making the best decisions in terms of achieving their financial goals.

Growth Investing

The focal point of growth investing is scouting companies that display a potential for significant future growth. Investors that are growth-oriented try to look for companies that can generate high revenue growth rates, unique products and have authority in leading market positions. Even Though these stocks are not undervalued, they have the prospective future that can provide significant returns. Additionally, growth investors are always looking to invest in technology and related emerging industries, acknowledging the possibility of immense earnings.

Value Investing

Value investing is a term made prominent by Benjamin Graham and Warren Buffet, who are considered as the pioneer of value investing philosophy. Value investing puts an emphasis on undervalued stocks that have a potential to grow thanks to their strong foundations. The followers of this philosophy tend to buy stocks at lower prices than their inherent value. This is due to the assumption that the market prices will one day show the true potential of these stocks.

Value investors however do look for firms that have a robust financial strength, continuous earnings, and lesser financial obligations. 

Passive Investing

Passive investing focuses on checking the performance of a definite market index like the S&P 500. In this type of investing, investors purchase exchange-traded funds and index funds that mimic the index’s structure. This technique provides a wider market exposure, lower charges and less risk thanks to diversification. Index investors rely on the accuracy and efficiency of the market and focus on matching the market returns instead of surpassing them.

Income Investing

This type of investing focuses on providing a stable income from investments. The philosophy of income investing puts an emphasis on choosing assets that generate consistent interest amounts like dividend-paying stocks, real estate investment trusts, bonds. Investors that rely on income investing are usually people who seek a financially stable life, retirees, new investors because this type of investment can assure consistent returns over time.

Socially Responsible Investing

Socially Responsible or ethical investing appraises both environmental impact and financial returns as well. Socially Responsible Investors choose a company that is in line with their values. These are the companies that have strong environmental practices, a track record in social contributions, etc. Socially Responsible Investing philosophy is ideal for those who want their investments to portray ethical standards as well as good financial returns too.

Momentum Investing

Momentum investing puts a focus on existing market trends. Investors looking to use this philosophy buy stocks that have a proven upward price trend. This translates to the fact that the momentum will continue. The whole concept of momentum investing is based on the fact that the stocks that have performed well in the near past will definitely provide a prosperous future. This strategy can provide you exceptional returns but carries the risk of market retracement and increased unpredictability.

Contrarian Investing

Contrarian Investing is all about purchasing market assets that are currently not the best performing or out of favor. Contrary, Investing is of the view that peoples contradicting point of views can lead to undervalue and mispricing that provides opportune time for purchasing these undervalued stocks. For understanding this philosophy there needs to be a strong grasp on market psychology and calmness as it takes time for the market to realize the value of certain stocks.

The Verdict

It's important to stick with an investment policy when investing and have a clear alignment of your financial goals, risk management providing a uniform approach towards dealing with market highs and lows. It doesn’t matter which investment philosophy you invest on, staying consistent is the main thing here. By doing this, you can avoid decisions governed by emotions and helps you stay on the track in case there are market shifts.