When it comes to investing for your future, playing the long game seems to be the most obvious choice. Even the most successful day-traders with exceptional skills have a long-term investment portfolio to keep them in the race.
If you are not one of them, it’s high time you start investing as early as possible and make compounding work to your advantage. Long-term investing does not only ensure peace of mind, but it is something that anyone can do. You have enough time to correct your mistakes and let your winners ride over the long run for outstanding returns.
Follow these strategies to make your money work for you while you sleep better at night.
Create a roadmap around your financial goals
Trying to achieve your financial goals without a strategy is like navigating the ocean without a compass. You may end up at the wrong destination. It’s important to be clear on your vision, the time frame, and the risk you are willing to take as an investor. Wavering back and forth with your approaches is a sign that you are emotionally triggered by the market conditions.
Investment tools like treasury bonds and CDs (certificates of deposit) are low-yielding options but are more conservative than high-yielding equities and stocks. You have to strike the right balance between the two extremes. The conventional 60/40 rule (60% equities, 40% bonds) works best for most people, but you can adjust your strategy based on your risk tolerance.
Always remember to invest in something that’s in your wheelhouse!
Spread your savings across several asset classes
The best thing about long-term investing is that the time is on your side. You can ignore the market noise as long as you are invested in the right asset classes. This is where diversification comes into play. Apart from bonds and equities, you should also consider owning real estate or a range of dividend-producing stocks in various sectors. Investing small portions in cryptocurrencies is also a popular choice these days, as they may prove to be a good hedge in the event of high inflation.
As the famous saying goes, “Don’t put all your eggs in one basket”, you should aim to have a balanced portfolio with investments that you understand. Make sure to do your own research, even if someone gives you a hot tip.
Make the most of dollar-cost averaging
The discipline and practice of investing regularly eliminate the risk of volatility shock. DCA is a long-term strategy that requires you to spread your investment over a period of time, irrespective of the asset’s price at the time of purchase. The longer you take advantage of this technique, the more profitable it will prove to be.
You have to be consistent even when the market bleeds. The moment you pull the plug, it will show up on your returns.
Don’t even think of timing the market
We all can relate to the urge of checking our portfolio every now and then. It can be hard to resist the temptation to sell a declining stock or purchase a rising one.
However, that’s not the way long-term investing works!
Even the most sophisticated of investors find it impossible to sell the top and buy the bottom. You may miss out on significant investment returns if you move your money in and out at the wrong time. For achieving better long-term results, you should stomach everything that comes your way. Stay invested regardless of the highs and lows!
Stay calm and track your progress
Now that you have done all the hard work with asset allocation, it’s time to sit back and track your progress. There’s a chance that the stocks may perform way better than bonds in a given year, or vice versa. In that case, you have to rebalance your portfolio to get back to your original plan.
Suppose you follow the 60/40 rule and had an outstanding year with your chosen stocks going on a rally. But at the same time, your bonds stayed put or moved towards the south. The best thing to do here is to sell some of your stocks and buy more bonds. That will help retain your investment ratio!
Don’t waste too much time debating on whether you should invest in stocks, bonds, or real estate. The beauty of financial markets lies in the varying performance of different financial assets. Focus more on achieving a solid allocation and see how it performs!