Many investors want to be more strategic with their investments but don’t want more risk. And sometimes getting ahead means not doing what everyone else is doing.
Advanced investment strategies are less common among individual investors, but they are what the wealthy do.
For example: Is tycoon Mark Cuban investing with a standard asset allocation into stocks and bonds? It’s highly unlikely. We know that Mark has recommended using puts to protect your stock portfolio and invests in small businesses.
And what about Warren Buffett? Does he have a typical investment portfolio based on asset allocation in stocks and bonds? He invests in undervalued businesses, but only when he can find them.
And how about legendary investor Ray Dalio who invests around market cycles and low valuations?
Are any other really brilliant investors using standard asset allocation long term buy and hold investing methods?
No, they are using advanced investment strategies that take a little more effort. And individual investors, like us, can learn from them.
In this post I’ll list 5 advanced investment strategies that I have either learned or done in the almost 40 years since I personally began investing.
There are many more advanced investment strategies than simply buy and hold investing based on asset allocation. While this strategy can work well for patient investors with decades to save and invest, investors over 50 don’t have decades to save and invest before retirement.
Pus, more advanced investment strategies can build wealth faster and with even with less risk at times than passive asset allocation investing.
None of the advanced investment strategies here are too complex. Most of these strategies are just the next step up from long term buy and hold investing based on asset allocation for investors who want to invest more proactively.
Factor Based Investing
Factor based investing has become increasingly popular over the past few years. With factor based investing, investors or fund managers buy assets based on certain factors, such as valuations or economic trends.
This makes a lot of sense. With the increased ability to gather and analyze data from past investment performance based on various factors, systems can be developed to capitalize on that data.
You may have already read here that math, logic and past data (not emotions or herd following) are the best tools to determine worthwhile investments. This is exactly what factor based investing does.
It’s sort of like old fashioned logical investing before the days of index funds, but it can be done with index funds.
Factor based investing uses math, logic and data to make it easy for individual investors to capitalize on all of this powerful information.
How can individual investors take advantage of factor based investing?
They can pay attention to the overall markets, valuations and the economy before investing.
They can hire a wealth manager that has factor based investing as a high priority for selecting investments.
They can buy into funds that are based on factor based investing.
Read more about factor–based investing here.
Alternative Assets with Factor Based Investing
Factor based investing focuses more on slightly alternative investments, such as Emerging market investment or real estate than most standard asset allocation portfolios.
The goal of factor based investing, along with most advanced investment strategies, is to beat index funds.
Making Investments Around Market Cycles
Factor based investing naturally incorporates market cycles as a factor through many of it’s factors, but there are also strategies that simply focus on market cycles.
This can range from something as simple as buying oil stocks because you’ve noticed oil is at the low end of a long term cycle, to using more sophisticated technical indicators that predict market cycles for all investment decisions.
While it is considered a more advanced investment strategy when compared to long term buy and hold investment strategies, investing around market cycles is fairly simplistic. Many investors, and more tactical financial advisors and wealth managers invest with a heavy consideration of market cycles.
More advanced alternative investment strategies can range anywhere from commodity ETFs to timber land to real estate rentals.
There are many different kinds of alternative investments that all fall within the realm of advanced investment strategies since they are not considered traditional investing in stocks and bonds using a standard asset allocation model.
The best alternative investments should be chosen based on your desired lifestyle, net worth and financial goals as defined in your own wealth plan.
Small Business Investing
Some advanced investment strategies are becoming more mainstream every day. One example is small business ownership.
The internet is largely responsible for the huge trend in small business startups and related small business investing. There are many ways to invest in small businesses including:
- Starting an Online Business
- Buying an Online Business
- Investing in Startups
- Online Crowd Funding for Small Business
- Venture Capital Funds
The list above includes investments that require no capital, such as starting an online business, to investments that require a lot of capital such as Venture Capital funds.
Buying an online small business falls somewhere in between since small online businesses are now commonly selling for an earnings multiple of around 3, providing an incredible opportunity for investors interested in this investment strategy.
Some small business investments will be limited to Accredited Investors, but with the regulations for individual investors have eased considerably in this arena.
Risk from Small Business Investment Strategies
While a more advanced investment strategy may include a portfolio allocation into small business, risk is an important factor here. Small business has a higher failure rate than large corporations, so it’s more important than ever to diversify.
The rule of thumb I learned was to invest in 10 small businesses for every one business. While I think this could get overly complex with some of the small business investment types above, such as buying an online business, I still think it’s important to consider.
Of course, since option 1 above, starting an online business, requires no capital to speak of, there is little to no financial risk in starting an online business. This is another reason I think this makes sense for many older (and wiser) investors seeking extra income with potential tax benefits.
Using options is one of the more common advanced investment strategies, even for stock investors.
For example, stock investors buy puts to protect stock portfolio risk.
Some stock investors sell a naked put instead of buying a stock outright with the plan to own the stock if the put gets exercised, and to more puts until if it doesn’t.
Like me, many proactive stock investors sell covered calls for income on stocks. Selling covered calls is a simple strategy that can double and triple dividend income without adding any risk to owning a stock.
Advanced Investment Strategies Summary
As you can see, advanced investment strategies don’t have to be overly complex for individual investors like us.
And with technology and availability of reliable data, it has become easier than ever to implement many of the more advanced investment strategies.
And if you don’t want to make the effort yourself, there are many proactive financial advisors, funds and wealth managers that can implement advanced investment strategies for you, often for reasonable fees.
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