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What Are the Different Approaches to Investing?

An investor is an individual or entity who exchanges capital on the expectation that their investment will yield financial gains. There are different four types of investors.

🤔 Understanding the different approaches to investing

Passive Investors

Passive investors follow an investment strategy of “buy and hold” wherein they purchase securities or other products. Instead of selling their investments at the next opportunity, they hold onto them for years or even decades.

Passive investors subscribe to the underlying assumption of passive investing, which states that the markets will always perform – eventually.

The goal of passive investors is to minimize the costs and risks of investing while maximizing returns. Generally, passive investing goes hand in hand with index investing. This is a type of portfolio construction that buys the whole market, rather than trying to pick individual stocks. The most common way to do this is via an ETF, such as an S&P 500 Index ETF.

Because this type of investment fund holds positions in the entire market, the investor will receive the ‘average’ return of every stock listed in a particular index. This limits the potential upside of the returns, but also limits the potential downside due to higher diversification.

Active Investors

Active investors are in it for the big money. Whether they purchase shares in an actively managed fund or select their securities themselves, active investors have one goal in mind: to outperform the market’s average returns. They do this through a variety of strategies, but the overarching theme is taking advantage of short-term fluctuations as well as long-term trends.

Active investing is a time- and labor-intensive strategy that involves deep analysis of the market and each stock, bond, etc. within a portfolio. In the case of investors who purchase into an actively managed fund, the portfolio manager oversees clusters of analysts who examine various financial metrics and available data. Depending on the objectives of the fund, analysts may research a stock’s fundamentals, historical performance, project a future outlook, or take other measures such as using AI to examine all available data.

Growth Investors

The growth investing strategy works by building a portfolio of securities with high growth potential. Often, growth investors employ this method for assets they believe have strong underlying value, rather than just examining the fundamentals or other financial metrics to reach a conclusion. Growth investors frequently do a lot of research on their selections, taking into account factors such as the current and future health of the company, the industry, and the company’s direct peers and competitors.  

Value Investors

Value investors seek out stocks that fit the “value investing” strategy. Namely, these investors focus on securities that they believe are underpriced compared to their true worth. The allure for value investors is simple. When the market corrects to accurately reflect a company’s price, they can cash in on their returns quickly.

Value investors subscribe to the belief that the market is irrational. This leaves opportunities to see gains on securities that slip through the proverbial cracks. Value strategies focus on buying these assets at a “discount” now. Then they sell them for a profit potentially years down the line. As a result, most value investors play the long game. The market may not correct its oversight for years to come.

What this means for you

There's no one right way to invest. You have the freedom to try out different types of investing strategies and find what fits for you. Q.ai makes it simple.

Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.

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