Investment ideas are specific views, plans, or insights on ways to invest money effectively. The expertise and guidance of an investment advisor, who recommends various investments based on individual circumstances, are typically involved in investment ideas. Professional portfolio managers also build targeted investment portfolios around investment strategies and ideas that target a specific style.
Types of Investment Ideas
Modern Portfolio Theory
Modern portfolio theory can help to build a framework for individual investment plans. Modern portfolio theory suggests that investors can build an optimized portfolio that provides for diversification and risk tolerance. By basing allocations from the recommendations of the capital market line, investors can skew their allocations using individual securities or funds to match their risk tolerance, which may be conservative, moderate, or aggressive.
Asset Class Risk
Asset class investing can help investors fill out their portfolios using a bottom-up foundation for the development of investment ideas. Generally, asset classes are associated with certain risk levels that help in investing and portfolio construction. More aggressive investors seek out portfolios with higher risk through higher equity allocations, whereas conservative investors or investors approaching retirement typically choose higher credit investments with lower risk. Once a risk profile and breakdown of investment categories are identified, investors will find a range of investment ideas and product options to choose from. Often this type of investing is focused on finding investment ideas that fit certain style specifications.
Investing in Style Style investing can be a crucial component in constructing a diversified portfolio. Conservative investments may include product styles focused on money market funds, loan products, high yield corporate bonds, high-quality corporate bonds, and government bond investing. More aggressive equity investments may include growth stocks, value stocks, income stocks, or funds managed with a specific market capitalization focus. Investment managers can use both quantitative and qualitative techniques to generate investment ideas and investing strategies for their portfolios.
In some cases, investors may also choose a balanced fund with an asset allocation strategy matching their recommended profile. Balanced funds can take the place of identifying individual holdings by managing a comprehensive portfolio strategy allocated to multiple asset classes.
