5 tips for successful long-term investing

5 tips for successful long-term investing
Table Content
1. Start early
2. Figure out your risk level
3. Stand by your strategy
4. Mix things up
5. Don't be swayed by market noise
6. Bottom line

Thinking of long-term investing? If you are, then you’re really looking out for your future. Long-term investing is the way to go if you want to build up a big nest egg for retirement, save money for a future expense (like college or a house), or even beat inflation. But as great as it sounds, to come out on top, you’re going to need patience, lots of research, discipline, and planning. 

After all, it’s no secret (or it shouldn’t be) that the stock market is full of uncertainties and risks. That’s not to say you can’t be a winner, though! Here are a few tried and tested rules that can help investors like you increase the chances of long-term success: 

1. Start early 

Young investors have the freedom and time to learn about investing and figure out what works for them and what doesn't. Learning how to invest can take a while, giving early starters a leg up because they've just got more time to study the markets and tweak their investing approach. Younger investors might also be able to handle more risk since they could have more time to recover from mistakes. 

When you start saving and investing at a younger age, you’ve also got the option to take advantage of compound interest and develop a habit of saving and investing regularly—all of which are big wins. Honestly, compound interest can be a game changer for growing your wealth, so why not benefit from it from the get-go? 

2. Figure out your risk level 

You should recognize the risks associated with different assets before you invest in them so that you can avoid making rash decisions in response to market downturns. Generally speaking, stock investments are seen as riskier than bond investments. So, as you get closer to your target, you could consider lowering your stock allocation. 

However, even across stocks, there are varying degrees of risk. For instance, investors may feel more comfortable putting their money into US equities than those of nations whose economies are still in development, where economic and political uncertainty tends to be higher. 

Otherwise, there are bonds, which are considered safer than stocks, albeit not risk-free. Corporate bonds, for instance, are only as safe as the issuer's financial health. If the company fails, it might not be able to pay its debts, leaving bondholders holding the bag. Stick with bonds issued by corporations with good credit ratings to reduce this default risk. 

While credit scores might be a helpful starting point, they’re not a foolproof method for gauging risk. There are times when even the most highly rated firms and bonds underperform. Short-term gains might tempt those new to the market, but long-term investments pay off with more certainty in the end. Short-term trading can be profitable, but it’s also riskier than a buy-and-hold strategy.

3. Stand by your strategy 

When investing, it's crucial to stick to a particular investment philosophy rather than switching between them. You're entering risky terrain if you waver between alternative strategies. Aside from that, long-term investment strategies should be approached differently depending on your end goal date, whether that’s in five to fifteen years or more than thirty years away. 

Knowing how many years you have before you'll need the money you've invested is the most important factor in any long-term strategy. There is no universally accepted definition of "long-term," although often it refers to investments held for five years or longer. If you know when you'll need the money you're investing, you'll know which investments suit you best and how much risk you should be willing to take. 

But on the way to your end goal date, don’t be too rigid if, or when, life happens. Even the most disciplined investors check in on their plans and might have to make changes from time to time. Depending on how your finances have changed or if something unexpected has caused you to shift your priorities, you could do an in-depth review of your portfolio as often as every three months. If not, you probably can space those check-ins a lot further, especially if you're investing passively in index funds—once a year is what most advisors suggest.

4. Mix things up  

By putting your money into a variety of assets, you can spread your risks and increase the chances for successful investments over a long period of time. To cover all your bases, experts say it can be good practice to avoid having two or more investments that are linked and moving in the same direction. 

That way, if the market is exceptionally harsh on a certain company or industry, your other assets might be able to help stabilize the situation and mitigate your short-term financial loss; the risk and return of your portfolio as a whole won't be disproportionately affected by the performance of any one investment. 

You could invest in a wide range of securities (e.g., stocks, bonds, gold) as well as different securities within the same asset class. Diversifying your investments stabilize your portfolio and strike a balance between risk and reward. For example, if you’re investing in stocks, put your money in large-cap, mid-cap, and small-cap funds.

Large-cap stocks — shares in corporations with a market capitalization that adds up to a value greater than $10 billion. 

Mid-cap stocks — shares in corporations whose market capitalization is between $2 billion and $10 billion. 

Small-cap stocks — shares in corporations whose market capitalization is less than $2 billion. 

5. Don't be swayed by market noise 

 Always do your own research before investing. Don't rely on a stock recommendation, no matter how credible the source claims it to be. Sometimes advice proves useful, but to achieve sustained success, it’s necessary to do a lot of research into the market and the circumstances at hand. 

When things in the market start to shift quickly in one direction or the other, opinions and perspectives can come in from every direction. All of a sudden, everyone will be giving their two cents and offering unsolicited suggestions. But when you're investing for the long run, it's important to tune out distractions so you can stay focused on your objective. 

Because of the constant flow of information coming from the market, investors often make snap judgments, which can lead to subpar outcomes. If you feel like you need extra support in the investing process, you should speak with a financial counselor who is familiar with your strategy, current financial situation, and long-term objectives. That way, you can keep your eye on the prize and not lose sight of the overall picture. 

Bottom line

Investing in the stock market with long-term goals and a diversified portfolio can work wonders. But that's not a green light to do it recklessly and all at once. The markets can rise or fall quickly in the short term, so it could be wiser to invest a little bit every week, or every month, and keep adding to your portfolio over time. Other than that, remember to pair our tips with plenty of research and to have fun along the way!

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