Do you feel time is right for you to pursue and perfect investment strategies that can last a lifetime? If yes, it pays to know about Titus Maccius Plautus, the Roman comic playwright who lived in the 3rd century B.C. He has inspired many a investor. A quote that has been attributed to Plautus says that in everything the middle course is the best and all things in excess bring trouble to men. Investment, as with many things in life, requires a balance.
Balance actually serves as a metaphor when it comes to long-term investing. This is because needs keep changing over time and strategies that work in one year may not be effective in the next. However, the below mentioned strategies, recommended by investment experts, can be used throughout your life.
#1: Invest in what you are able to understand
Ignorance is not bliss when it comes to betting on a company or sector over a long period of time. It is as good as playing the slot games in Las Vegas. If you don’t have a good understanding of the business you are investing in, it may not be possible for you to take informed decisions.
#2: Start investing early
The longer your money remains invested the better for you. This is because compounding helps to grow your money. Investors that start early need to be patient and continue with the long-term investing strategy. They will bag the best returns and achieve financial success. For example, an individual that contributes $1,000 per year to a retirement account from 20 years to 30 years of age, and then stops, enjoys a bigger advantage over an individual that starts at 30 years of age and invests the same amount for 35 years.
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#3: Include a 401(k) match into the mix
If your employer offers a matching contribution as part of the company’s plan, you must make sure that you contribute at least the minimum required to receive the contribution. If you are not taking advantage of the employer contribution, you are actually leaving money on the table.
#4: Manage your cash flow properly
Management of cash flow is the most important element of long term investment planning. This a simple thing, but very crucial. Invest money automatically during the years you work, each month at the least. Simply adhering to a cash flow plan, making reassessment at various stages in your life and incorporating changes as required will go a long way in helping you achieve your financial goals.
#5: Separate emotions and objectives
If you consider an opportunity to invest with the same kind of fervor as a sports team’s fan or hater, you are leading yourself into trouble. Therefore, you must separate your emotions from your financial objectives. This will help you to make a better overall judgment and ensure a good performance. The more open minded you are, the better for you. Thinking about investments in a totally new light will help you to invest in assets that are undervalued.
#6: Convert the money you have for discretionary spending into investments
Individuals that keep delaying investing for many years are those that often get confused with their needs their wants. Over time, cable TV packages, cellphone bills and all of the different kinds of automatic services gradually become necessities and as a result the prospective investor would never jump out. It takes your discretionary income to grow your investments. Further, it takes a lot of discipline to invest discretionary income. You should question all those things in life that have become the norm. This is because they may not actually be necessities.
#7: Cash reserves and investments must be put in separate buckets
In investing, the biggest risk involves providing your funds at the most inopportune time. Therefore, it is important that you balance any of the funds that you may need in the next 3 to 5 years, or say an economic cycle, between your money market account and the high-quality, short-term bonds. You are not required to sell all your investments and incur a loss. You will always have liquid funds available whenever you have a requirement for them, even if the market has crashed.
#8: Include stocks as a cornerstone of your investing strategy
It is an accepted fact that stock investments are one of the proven tools for creation of wealth creation. They are the best tools that are available to the mankind. Investors need these tools, if their goal to grow their portfolio and beat inflation. There might have been some moribund stretches that have lasted through the 1960s and 1970s, but the Standard & Poor’s 500 index has been able to produce a return of 7.25 percent over a period of 20 years, on an average, if you care to look at all of the 20-year periods that date back to 1926.
#9: Diversification gives a smoother ride
Getting tied to either one particular stock, or one other investment type or asset class for that matter, is not a good idea at all. You should diversify across asset classes and also within the asset classes. This is the smartest way of investing your hard earned money. For example, equities are available in varied flavors when considering characteristics like market capitalization, growth versus value and U.S. versus foreign, among others. Diversification may ensure profits or protection against loss in a declining market scenario, it does ensure that you experience a smoother ride.
You should never ever vacillate. It is an accepted fact that portfolios need to be tweaked over time. You don’t ever have to completely overhaul your portfolio. It is the nervous investors who often resort to overhauling their portfolio during the down trends in the market. Investing, in reality, is a long-term activity. It is not a sporting event and does not require frequent adjustments. If you treat as a long-term activity and make small adjustments occasionally to your investing strategy instead of trying to time the market, you will be right on track to achieve your ultimate goals for sure.