Match Stocks and Investing Strategies With Your Goals

With thousands of stocks available to invest in, there’s no doubt that selecting the right ones for your portfolio can be tricky.

Ultimately, the key to investing success is your ability to match stocks that fit your personal goals and situation.

This boils down to asking yourself one simple question…

When will you be needing the money?

Do you need it in 2 – 3 years to purchase your first house? Or maybe not for another 25 years when you expect to retire?

The difference between these two scenarios is huge, and both call for very different investing strategies. Your answer to this question will help dictate how much risk you should be willing to take, size of the company you should invest in, and even whether you should invest in stocks at all.

Here are a few guidelines to keep in mind when creating your personal investing strategy.

Long term investors (5+ years)

If you won’t be needing your money for at least 5 years then you’re considered a longer term investor. Long term investors can accept greater short term risk and market volatility with the anticipation of higher returns over longer time periods. If the market does take a dip your portfolio will have plenty of time to recover before needing your money.

Because you’ll have the wonderful asset of time on your hands, you can invest heavier into small & mid cap stocks. These are the high growth, but greater volatility stocks. Over a period of more than 5 years, small & mid cap stocks generally outperform large caps simply because there’s more upward potential. They’re smaller companies, and a larger piece of market share is their’s for the taking.

Keep in mind this doesn’t mean you should go out and invest all of your money into small cap stocks. It’s still important to be properly diversified, which means investing in large caps as well. Having more than 5 years until needing your money simply means you can invest a larger percentage of your money into small cap stocks.

Intermediate & short term investors (1 – 4 years)

If you’ll be needing your money sooner, say in 1 – 4 years your investing strategy should trend towards a more conservative approach. If the market takes a dip, you’ll have much less time to allow for recovery so it’s wise to play it a little safer.

This means investing more in mid cap and large cap stocks, which are less volatile than small caps. Dividend stocks are also great additions to your portfolio for the mid & short term. Not only will you earn a dividend payment several times a year, they’re also generally less volatile than non dividend paying stocks.

Ultra short term investors (less than 1 year)

Not the stock market. If you’ve got less than a year before needing your money you really shouldn’t be thinking about stocks. Sure, you could get lucky and find a stock that moves upward in less than a year, but it’s just too risky. At this point you’re not really investing; you’re speculating – rolling the dice to gamble.

With less than a year it’s a much better approach to seek safer investments like Treasure bills, short term bonds, and money market accounts. Stocks are simply too risky.

Check out the table below for some guidelines on choosing investments that best fits your personal style, and time frame to needing your money.

Type of Investor	Time Frame	Most Suitable Stock Type
Conservative (risk averse)	Long term (5+ years)	Large cap & mid cap stocks
Conservative	Intermediate term (2 – 5 years)	Large cap stocks (preferably with dividends)
Aggressive (high tolerance for risk)	Long term (5+ years)	Small cap & mid cap stocks
Aggressive	Intermediate term (2 – 5 years)	Small cap & mid cap stocks
Short term	1 – 2 years	Not the stock market. Look elsewhere such as CDs, short term bonds, money market accounts
Very short term	Less than 1 year	No….just no. Not in the stock market. You can try, but with less than a year, you’re really just speculating. Try similar investments as the short term investments listed above