The 5 phases of investment strategies

Money, risk and time are relevant factors in the various phases of investment strategies that investors design to make their savings profitable

All the actions we undertake in our lives are better if we have designed a plan beforehand that allows us to have an optimal strategy for success. This is crucial when setting up a company, as it is essential to draw up a business plan. And it is just as important to design investment strategies when a person decides to get a return on their money. Otherwise, he or she risks not making the most of his or her savings.

Thus, investment strategies have become a very important element not only for large investors, but also for small investors. To prepare investment strategies that rely on simple-to-understand financial products, such as those offered by crowdfactoring, does not require advanced knowledge, as is the case, for example, when investing in derivative products.

In fact, the rise of alternative financing platforms such as Inversa Invoice Market has helped small savers to enter the financial system. On these platforms, investors can view all the relevant information to design all phases of investment strategies and implement them successfully.

In the following, we will explore the five phases of investment strategies that need to be implemented in order to get a return on savings.

1. Setting the starting point and how to reach the goal

All investors have a shared goal: to get a return on their money. However, each one seeks to achieve this goal starting from a different situation and following a different path.

When designing the phases of investment strategies, it is clear that it is not the same to invest solely in the stock market or to combine this type of investment with products from traditional banks and alternative financing methods such as crowdfactoring.

Investors are becoming increasingly diverse. It is no longer just people with a large amount of available financial resources and extensive financial knowledge who invest. Small savers can now also design the phases of investment strategies and implement them independently.

To do so, they first have to determine the amount of money they can or want to invest. As well as the objectives and the way to achieve them. Some people are interested in obtaining high returns, even if this means assuming a higher level of risk, taking longer to recover the investment or investing in complex financial products.

Others prefer to base their investment strategies on short-term products. Other investors prefer long-term investment products such as retirement plans.

In addition, more and more savers are focusing not only on returns, but also on where their money is spent, by investing in socially responsible companies.

The options are manifold. Therefore, the first stage of investment strategies is to make decisions about what you want to achieve and the means you intend to use to do so. Setting concrete and measurable investment objectives is key. For example, a small saver wants to invest 10,000 euros and earn 2,000 euros after 2 years by acquiring various short-term products. From buying and selling shares to crowdfactoring.

2. Determining risk tolerance

The second phase of investment strategies focuses on risk. Just as everyone has a different pain tolerance, when designing investment strategies we are faced with the fact that investors need to understand and define their own risk tolerance. That is, what level of risk an investor is willing to take in order to achieve a higher return.

Many investors engage in risky investment strategies. If the investments do well, they will make a lot of money, but what if they do badly? They risk losing the money invested.

Risk is an element that is present in all financial products. As the 2008 financial crisis taught us, the concept of too big to fail has become a thing of the past. Even Treasury bills have their risk - an EU economy like Greece was on the verge of bankruptcy during that crisis.

However, it is clear that not all investment strategies are built on the same risk tolerance. More conservative investors prefer products such as the aforementioned Treasury bills or investments with low returns, in exchange for the peace of mind of investing in solid investment products that offer maximum guarantees of recovery.

There are also fixed-income products, in which the investor knows how much the return on the operation will be (investment in a bill or a loan) and variable-income products, in which the return, as the name suggests, fluctuates and is therefore more uncertain (e.g. company shares).

Risk tolerance shows that when it comes to investment strategies, in addition to objective factors such as credit rating, term of return or profitability, subjective issues come into play, linked to the characteristics of each investor and his or her way of seeing the world.

3. Establishing the time horizon of investments

So far, when talking about the phases of investment strategies, we have emphasised the objectives (profitability, destination of the money, etc.) and the level of risk on which they are based, but we are missing a third pillar on which investment strategies must be based: the time period of the investments.

Time is one of the most valuable assets we possess. Largely because time cannot be recovered. That is why time is a variable to be taken into account in all our life decisions, such as designing our investment strategies.

The many investment products available today have very different payback periods and rates of return.

For example, on the Inversa crowdfactoring marketplace, savers can invest in invoices with a maximum maturity of 180 days, or 6 months. However, shorter maturities of between 60 and 90 days are the norm. In contrast, a Treasury bond can have a maturity of up to 30 years.

Investment strategies can be based on the acquisition of short term products, long term products or a combination of both. Why can't an investor finance a company through crowdfactoring and recover his investment in a couple of months and, at the same time, acquire a 5-year government bond?

As well as the other phases of investment strategies, time management shows us that the variables for designing customised investment plans are infinite.

4. Search for investment products and diversify

The previous three phases of investment strategies focused on planning, while this fourth stage is about implementing investments.

Based on what has been established in the first three phases of investment strategies, savers need to look for products that match their needs, desires and objectives.

The options are manifold: investment funds, pension plans, equities, bonds, debentures, derivatives, structured products and alternative investment.

All these products can be combined. In fact, with the rise of alternative investment and financing platforms such as Inversa, it is easier than ever to access investment products and diversify investments.

An individual can buy shares in a company, invest in a pension plan and also invest in invoices of real economy companies through a crowdfactoring platform such as Inversa.

What's more, within our marketplace, savers can diversify their investments, betting on invoices from different companies, moving within the objectives, risk and timeframe of their investment strategies.

5. Manage investments proactively and reinvest

Today, investors have at their fingertips the information they need to invest and the tools to directly and autonomously manage all phases of investment strategies.

Thanks to the technological revolution of the last decades, anyone can check the status of their investments from home and even start investing or reinvesting the gains.

The last stage of investment strategies therefore focuses on the management of investment strategies.

In the past, investment management was carried out by professionals specialised in this task, but thanks to digitalisation, investors themselves can now control all aspects of their investments.

For example, on Inversa Invoice Market's platform, investors have full freedom to control their investments and make investment decisions when and how they wish.

The marketplace provides key information about each invoice that is for sale. Credit rating, risk, profitability, expiry date, company released… In this way, investors are able to determine which bills fit their investment strategies and which do not.

In addition, we have a secondary market for bills, where savers can sell bills they have purchased or buy others that suit their interests, but which they were unable to purchase in the primary market.

In this way, they can implement their investment strategies with complete freedom, proactively making decisions to achieve their objectives, while contributing to boosting the real economy.

In short, the different phases of investment strategies demonstrate the key aspects that investors need to consider in order to get the most out of their money.

Just as you don't go into battle without a strategy, you shouldn't enter the investment arena without a plan. Carefully designing and implementing the phases of investment strategies is the best path to success.