What is an Investment Style?
Generally, there are three recognized attitudes and strategies for investing: conservative, aggressive, and moderate. Each of these is known as an investment style and they play a major role in determining the decisions that an investor makes. Investment styles usually cannot be judged on the basis of which is better overall. Instead, they should be judged on the basis of which is most fitting in particular circumstances.
Investors have different goals and attitudes about money. This is why there are various investment styles. The conservative investment style is one that defines people who want little or no risk. These individuals generally want assurance that they will not lose anything that they invest. At the same time, they are looking to earn.
The aggressive investment style is the complete opposite. People in this category have a tendency to make risky choices with their assets and they realize they can take substantial losses. The moderate investor makes some risky investments. In some cases she may ensure that most of her initial investment is safe from loss. Some moderate investors do a 50/50 split, whereby half of the invested assets are conservative and the remaining half are used in a risky manner.
Both conservative and moderate strategies can be used when a person has a significant amount of time to reach her financial goals. The difference is that a moderate investor generally has the potential for greater returns than the conservative investor, but she also has the potential to take greater losses. When a person wants to make a significant amount of money in a short period, however, she will generally need to be aggressive. Risky investments do not always translate into short-term returns, however. Sometimes, despite the risk, a substantial amount of time is still required.
There are certain types of investments that are common for people with the various styles. A conservative investor, for example, is likely to have bonds in her portfolio because there is little risk of losing the initial investment or of failing to get a return. An aggressive investor will likely have few, if any, bonds but will probably be heavily invested in the stock market.
Investment styles not only apply to individual investors but also to money managers. Mutual funds, for example, are professionally managed accounts with a collection of securities in which pooled funds are invested. The professionals who manage those accounts have a style of choosing the securities that are included in their funds. In many cases, mutual funds are marketed based on the investment style that is used.
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