What it is
Top-down investing is a method for analyzing investment options in which you’ll look at the bigger picture first by assessing macroeconomic indicators. Then, you’ll zoom into the finer details like the performance of certain industries and companies.
With this approach, you’ll primarily focus on what’s happening in the broader economy by considering indicators like the gross domestic product (GDP), geopolitical events, or changes in the interest rate.
What it means for you
The top-down approach is one of the many strategies that help guide investing decisions. You might want to explore this method if you’re interested in studying global economic policies and indicators, and how they affect investment markets.
This may help you identify industries and companies with the potential to do well based on current and forecasted economic conditions.
The opposite is a bottom-up approach, which starts with examining the health of individual companies and investment vehicles before looking at the larger factors that may affect performance.
Remember that there is no perfect strategy for picking and managing investments. The method you’ll choose will likely depend on your knowledge level and preferences.
