Investing Style: Meaning, Examples, Due Diligence (2024)

What Is Investing Style?

Investing style is an overarching strategy or theory used by an investor to set asset allocation and choose individual securities for investment. Investing styles will typically account for the investors' risk tolerance, their investment time horizon, ethical values, and other considerations.

Key Takeaways

  • Investing style refers to the specific strategies used to meet one's investment goals. Investing styles typically account for individual risk tolerance, time horizons, ethical values, and other considerations.
  • Risk is a major factor in investment styles, with the riskiest investments offering higher potential returns.
  • For investors who do not have the time or patience to manage their portfolio, managed accounts can offer hands-free portfolio management for a fee.
  • While there is no one "right" investing style, there are many common pitfalls to avoid, such as gambling behaviors, emotional investing, and day trading. Regardless of individual preferences, each prospective investor should conduct due diligence on their investments.

Understanding Investing Style

Investing styles for individual investors are typically built from their risk tolerance, which can be generally classified as either conservative, moderate or aggressive. Risk is usually a primary concern for individual investors when determining an investing style and making investment decisions. Risk is also usually a key aspect of disclosure for investors when analyzing managed funds for investment.

Optimal Portfolios

Modern portfolio theory suggests that investors should be practicalin diversifying their investments in order to achieve optimal risk and return. Yetwith risk as a primary consideration, investors still have a multitude of investments for building a personal portfolio of individual securities or managed funds. In the investment universe, investors will find both securities and funds reporting characteristics that fit with an investor’s investing style.

Risk Profiles

When investing in individual securities, investors often look to stocks, bonds, and commodities. Each hasdifferent risk levels and investment characteristics. Conservative investors may seekindividual securities for income. Many stable, large-cap stocks pay dividends that provide for conservative to moderate risk with a steady income. Bonds can also be a top investmentfor income investors, as they providesteady payouts from coupon payments.

Within each asset class, investors will also find sub-asset classes that can guide their investing style. Within stocks, sub-asset classes may include growth or value. Within bonds, investors may choose to invest higher on the risk spectrum, with high-yield bonds, or more conservatively, with high-quality bonds.

Managed Accounts and Funds

Financial service providers and investment managers across the industry provide both managed accounts and managed funds that can support style or thematic investing.

Managed Accounts

Robo advisors, wrap accounts and separately managed accounts are all options for investors seeking support in managing to a certain investing style. Robo advisors and wrap accounts often base style investing on an investor’s risk profile, with active management also offering customized investing style options.

Managed Funds

Investing in managed funds can be one of the best ways to invest for style while also receiving the benefits of professional diversification. Most mutual funds and exchange-traded funds (ETFs) will employ a consistent investment style. Under the Investment Company Act of 1940, a manager's investment policies must be disclosed to investors in the fund’s prospectus, which is filed with its registration.

In the managed fund investment industry, investors will find all types of investment style options that generally fall into risk tolerance categories.

Passive vs. Active Funds

Among all risk categories, investors will also find passive versus active funds. Some investors may choose a passive investing style that offers exposure to various segments of the market often with lowercosts and lower risk.

An individual's investing style is different from the investment style of a mutual fund, which is typically determined by fund managers and disclosed in the fund's prospectus.

Examples of Investing Styles

Most investors will base their investment decisions based on their own perceptions of market risk and their individual investment goals. The following are some common investing styles, although most investors will combine these strategies into a unique investing style.

Value Investing

Value investing is a strategy that seeks companies or assets that are temporarily undervalued by the market, due to volatility, bad news, or other concerns. These are companies or shares whose market price is below their intrinsic value, determined from objective factors like income and assets. Based on the belief that the market will ultimately reflect the true value of these companies, value investors seek underpriced assets in the expectation of a price increase.

Growth Investing

Growth investors seek companies or assets with a high potential to gain value, based on perceived market trends and price trajectories. Growth investors typically seek small companies in young industries, that they believe are likely to gain value in the long run. Technology stocks and emerging markets are common targets for growth investors, based on the expectation of high average returns.

Income Investing

Income investing is a strategy that seeks to provide a steady income for the investor, rather than prioritizing capital growth. These investors will typically seek stocks with high dividends, in addition to fixed-income securities.

Due Diligence

Each investor will have theirown investing style and methodsformanaging investments. Do-it-yourself investors take a more independent approach, while investors using full-service financial advisory platforms tend torely on professional advice to shape their investing styles.

Regardless of the investing style one follows, due diligence is important for ensuring that an investment meets an investor's style. Choosing funds with clearly followed investment style objectives can help investors manage a targeted portfolio. Working with a financial advisor or investment service that deploys regular rebalancing can also help investors to avoid style drift and ensure their investments are maintained according to their investing style preferences.

As an experienced financial analyst and investment enthusiast, I've dedicated years to studying and practicing various investment strategies and styles. My expertise spans across the realm of investment theory, risk management, portfolio construction, and market analysis. I've actively managed portfolios, conducted in-depth research on investment vehicles, and advised individuals on crafting investment strategies aligned with their financial goals and risk tolerances.

Now, let's delve into the concepts outlined in the article "What Is Investing Style?" and elaborate on each:

  1. Investing Style:

    • An overarching strategy or theory guiding asset allocation and security selection.
    • Factors include risk tolerance, time horizon, ethical values, and other considerations.
  2. Risk in Investment Styles:

    • Investors typically categorize their risk tolerance as conservative, moderate, or aggressive.
    • Risk disclosure is crucial in analyzing managed funds.
  3. Optimal Portfolios:

    • Modern portfolio theory emphasizes diversification for optimal risk and return.
    • Investors have various investment options, including individual securities and managed funds.
  4. Risk Profiles:

    • Individual securities include stocks, bonds, and commodities with varying risk levels.
    • Sub-asset classes like growth or value stocks, and high-yield or high-quality bonds, cater to different risk preferences.
  5. Managed Accounts and Funds:

    • Offered by financial service providers, these support style or thematic investing.
    • Examples include robo advisors, wrap accounts, separately managed accounts, mutual funds, and exchange-traded funds (ETFs).
  6. Passive vs. Active Funds:

    • Investors choose between passive and active funds based on their risk preferences and investment goals.
    • Passive funds offer exposure to market segments with lower costs and risks.
  7. Examples of Investing Styles:

    • Value Investing: Seeks undervalued assets for long-term appreciation.
    • Growth Investing: Targets companies with high potential for value appreciation.
    • Income Investing: Focuses on generating a steady income stream from dividends and fixed-income securities.
  8. Due Diligence:

    • Investors adopt various styles and methods, from DIY approaches to full-service financial advisory platforms.
    • Due diligence ensures investments align with an investor's style and goals.
    • Regular rebalancing helps prevent style drift and maintains portfolio alignment.

Understanding these concepts empowers investors to make informed decisions, aligning their investment styles with their financial objectives and risk tolerances. Whether one leans towards value, growth, income, or a blend of strategies, a thorough understanding of investing styles is paramount for successful wealth management.

Investing Style: Meaning, Examples, Due Diligence (2024)


What is an example of due diligence in investing? ›

An example of a due diligence process could be when a potential investor in a startup conducts a thorough review of the company's financial statements, business plan, market analysis, and legal contracts.

How do you describe investment style? ›

In addition to risk tolerance, investment style can describe the type of investments that a portfolio has. For instance, investment style may be dictated by market capitalization (large-cap), mid-cap, small-cap) or whether a stock is growth vs. value.

What is investment style risk? ›

Investing style refers to the specific strategies used to meet one's investment goals. Investing styles typically account for individual risk tolerance, time horizons, ethical values, and other considerations. Risk is a major factor in investment styles, with the riskiest investments offering higher potential returns.

What is the quality style of investing? ›

Quality investing strategies seek to buy financially healthy companies that have strong earnings and stable balance sheets. Quality is about trying to find companies that are efficient with capital. Imagine that you're at the grocery store and looking to buy fruit.

What are the 4 P's of due diligence? ›

Intangible Factors. In addition to the four key principles of people, performance, philosophy, and process, four intangible factors can also play a role in manager selection: passion, perspective, purpose, and progress.

How do you demonstrate due diligence? ›

What documentation is needed to show due diligence?
  1. Worker orientation, education, and training.
  2. Workplace inspections, including corrective actions taken.
  3. Incident reports, including corrective actions taken.
  4. Audit reports, including evidence of implementing recommendations for improvement.

Why is investment style important? ›

Funds must state an objective, and the investment style helps set general expectations for the risk and performance potential of a particular fund. Investment managers that adhere to their stated investment objectives are generally considered to be style pure. Ones that deviate may suffer from style drift.

What is a value investment style? ›

Value investing is a strategy made famous by iconic investors like Benjamin Graham and Warren Buffett. Practitioners aim to identify stocks whose prices don't reflect what they're really worth. Their hope is that when the market grasps these stocks' true value, share prices will shoot up.

What are the two primary investment styles? ›


There's much debate about the relative merits of active and passive — two common investing styles — which are based on very different views of how capital markets operate. You can find out more about active and passive investing in Beyond the benchmark: active or passive investment management?

What is the best investment style for 401k? ›

Don't stay in cash or cash-like investments – your 401(k) is a retirement plan that should be invested in things like stocks and bonds with an objective for growth, especially if you have a long time horizon. You need your account to grow beyond just your contributions to help fund your retirement.

What is growth investment style? ›

Growth investing is a type of investment strategy focused on capital appreciation. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios.

What is an aggressive risk profile investment style? ›

Aggressive Risk Profile: An aggressive risk profile suggests a higher tolerance for risk and a willingness to pursue higher returns, even if it means enduring significant market fluctuations. This profile may involve a focus on growth stocks, venture investments, or other high-risk, high-reward opportunities.

What are the 3 major types of investment styles? ›

While the types of investments are numerous, it is possible to group them into one of three categories, equity, fixed-income and cash or cash equivalents. The term “equity” covers any kind of investment that gives the investor an ownership stake in an enterprise. The most common example is common stocks.

What is an example of quality investing? ›

Imagine that you're at the grocery store and looking to buy fruit. You notice today that the organic apples are priced the same as the non-organic apples. Given the current prices, you opt to buy the “higher quality,” organic apples. Think of quality investing in a similar light.

What are the passive investment styles? ›

Passive investing broadly refers to a buy-and-hold portfolio strategy for long-term investment horizons with minimal trading in the market. Index investing is perhaps the most common form of passive investing, whereby investors seek to replicate and hold a broad market index or indices.

What is the due diligence process in investment? ›

What happens during due diligence? The due diligence process helps the investor determine if its initial decision to provide funding is based on accurate information. As such, investors check your finances, your company's structure, legal documents, key personnel, employment contracts, vendors, clients and more.

What is an example of a due diligence clause? ›

Buyer shall have until 5:00 p.m. (EST) on the date which is sixty (60) days after the Effective Date (“Due Diligence Period”) in which to conduct its due diligence and all inquiries and investigations with respect to the Property as may be determined by Buyer in its sole discretion and at its sole cost and expense.

What is the meaning of due diligence in stocks? ›

Due diligence is an investigation of a potential investment (such as a stock) or product to confirm all facts and to ensure the purchase will meet the buyer's needs.

What are the two main types of due diligence? ›

The 7 Main Types of Due Diligence in Mergers and Acquisitions
  • Financial Due Diligence. ...
  • Legal Due Diligence. ...
  • Operational Due Diligence. ...
  • Human Resources Due Diligence. ...
  • Intellectual Property Due Diligence. ...
  • Environmental Due Diligence. ...
  • IT Environmental Due Diligence.
Oct 30, 2023

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