Long-term investing allows you to make more impactful moves with most of the risk mitigated by the long-term nature of the investment. It’s important to remember that long-term investment is just that: long-term. The pay-off for your investment may benefit you immensely when you retire, for example. There’s potential for results earlier, but there must be a commitment to the idea that this form of investing is a marathon, not a sprint.
Finding worth-while investment opportunities usually involves the give and take of the risk-security balance. Most investments which are high risk have high pay-out potential, but, naturally, involve the ‘risk’ of total failure. Most very secure investments won’t reward you very much and, in the ever-changing world of financial markets, can actually reap you nothing at all, with the inflation rates.
Long term investing also necessarily involves some sacrifice. Potentially not the level of sacrifice involved in high risk short-term investing, but sacrifices do still need to be made when looking to yield results.
So, with that all being said, here are ten effective strategies for making a success of long-term investing.
10 Potent Long-Term Investing Strategies for Prosperous Billionaires
1. Invest What You Can
To some extent the essence of making long term investment is not overreaching. There’s no necessity to blow everything you have on one investment because the central concept is that small regular investments in stable companies will go a long way in the end. Of course, that’s not to say that tiny investments are all it will take, it’s simply to say that regular investments that come out of your income can do lots of work for you in the big picture without you needing to break the bank. It’s tactically conservative meaning that it may seem restrained, but the restraint is shown only with the promise of gains in the long run.
2. Invest In What You Know
Understanding the business sector in which your investment(s) lies is crucial with long-term investing. With the short-term high-risk investment, you can dive into a market that you’re completely unfamiliar with and not get bitten by your lack of understanding since the whole thing is over so quickly. There’s no requirement to understand what motivates growth in that industry or what causes stock price to plummet.
In long term investing and understanding of the business world of the company you invest in is important. Being able to understand the historic trends, the potential threats and the future prospects of a product or a service allows you to make your decisions over time more wisely and encourages you to make the subtler adjustments to your income investment if and when it is needed. If you don’t understand the implications of an investment plan and you’re committing to it long term you’re setting yourself up for disaster.
3. Dividend Investing
Purchasing stocks in companies which issue dividends is almost never a bad idea. It makes logical sense that a company which frequently distribute cash dividends to their investors is going to be a good bet.
Whilst a long-term investment scheme may motivate you to view the dividends as supplements to a pre-existing form of income, or even as sums of money which can be delivered straight into a savings account, with canny dividend investing one can actually create a portfolio which allows you to live directly off your passive income. “In either scenario receipt of, usually quarterly, cash payments makes dividend investment into one of the most reassuring and tangible forms of long-term investment. We’ll keep coming back to this through the list,” says Manuel Warren, a Financial writer at Academized and Paperfellows.
4. Seek Security for Your Long-Term Investing Plan
In long-term investing in general, but particularly in dividend investing, seeking secure investments is always best. Security for dividends works slightly counter-intuitively. For example, if a company pays out a lot of money in dividends to their investors that is something of a warning sign. Though it may be tempting to take the option which promises the most money in dividends up front, it can be a sign that the company doesn’t have enough of a buffer if their financial good fortune takes a turn for the worse.
A company which exercises moderation with their dividend pay-outs is always more likely to be a stronger option in the long-term, which is of course what you should be focusing on. In fact, dividend pay-out amount should always come second to the company’s overall stability (its stability-profit-expenditure spectrum) when you are assessing a potential investment opportunity. It’s important to remind yourself that you are in this for the long run and not jump at the most enticing prospect.
5. Diversify Your Long-Term Investing Portfolio
Long term investment focuses on risk reduction which avoids profit reduction; in other words, optimising the ratio so that you are able to make the most over time for the least amount of risk. One of the best ways to avoid risk, a way which is frequently ignored at the short-term level for obvious reasons, is to diversify your portfolio. All this means is that you are more likely to ride out the highs and lows of the market if you have your fingers in lots of different pies.
One of your investments can crash for some reason, but because your total investment is spread between multiple companies you are able to ride out that financial storm off the back of your secure investments. It will require more time to identify multiple appropriate investment options but the added level of security it affords you can be invaluable. The flip side is that you are also more likely to make an investment that surprises you with how much it makes, the more investments you have in place.
6. Maximise Your Investing Budget
In some ways this is an obvious piece of advice, in another sense there’s a subtlety to it which a lot of people miss. You want to invest as much money as you can. This isn’t to back track on point number one, but that concept of ‘what you can’ is more flexible than a lot of people think. In modern life, we incur a lot of monthly costs, some of them essential, some of them less so. Once a direct debit is set up the effort that goes into then undoing the monthly transaction can seem great enough that there is more of a tendency for wastefulness and consequently there is less opportunity for putting even more money in your well cultivated long-term investments.
Paying your gas and electricity bill is one thing, paying your subscription to four separate streaming sites or an expensive gym you never really use is another, and a potential threat to your ultimate goal of accruing the most you can from your investment project.
“Your commitment to investment sometimes requires taking a long hard look at your own spending habits and deciding where you could be doing more for your future self by redirecting your cash flow into investment and out of wasteful lifestyle choices,” explains Chris Borger, an Investment consultant at Stateofwriting and Oxessays.
7. Be Ready To Make Change
In the long-term investment game there should be a decided aversion to hasty alterations to your portfolio. The sense that an investment should only be in place after a period of well thought out analysis and financial advice is important. So, in general, making changes is both not advised and not needed. However, the willingness to alter your portfolio, and in turn the requirement that you monitor the progress of your portfolio regularly and with an attention to detail can be crucial. In dividend investing it is even more important. If a company which was previously paying out cash dividends at a stable, steady rate then puts its rate up without an increase to their overall market performance or, even worse, drops their dividend pay-out in response to a financial event that should be a sign that it’s time to sell and get out.
It needn’t be impulsive but the desire for the security and consistency of a well-regulated dividend investment is what makes dividend investing, and long-term investing as a whole, so specifically appealing. Sell the stock, reinvest elsewhere, ideally somewhere that displays the commitment to consistency and stability which you got into the game for in the first place. In the long run, seemingly small changes in the present can lead to large losses or gains in the future, so if things are taking a turn for the worse be prepared to intervene.
8. Get Started Right Away
This is simple enough. The longer you have a good investment the more you’ll make in the end. This is certainly not to say to anyone that they’re too late, but young people often don’t investigate investment until they reach an age where they could have already made a large amount if they had got started 10 years earlier.
Once again, because it is a long-term investment, even as little as $1000 dollars in your twenties can be cultivated into one of the most valuable investment decisions of your life. There’s also an intuitive human logic to it: the earlier you put the money in the longer you have to enjoy the rewards of your investment. People tend to have less to lose when they are young, so putting in a small amount of money into a stable company which exhibits constant growth over a 10-20-year period and then putting the investment to the back of your mind can give you a wonderful surprise 15-20 years down the line.
9. Dividend Re-Investment Program (DRIP)
One very effective way to go about long-term dividend investment is to seek out a company which fits your portfolio and offers a DRIP. The unique thing about dividend investments is that there is a near-constant cash flow back to an investor. The ‘dividends’ which are paid back are normally quarterly but a company which offers a DRIP can intercept the cash and redirect it back into further dividend-paying shares at that same company. There are many advantages to this scheme including there being no commission on shares purchased through a DRIP, the ability to purchase fractional shares and the potential for exponential growth through your dividend pay-outs. But, for the average investor, one of the biggest advantages is simply that management of your increasingly complex portfolio is simplified by leaving it in the hands of a DRIP.
Of course, you want to keep an eye on your initial investment, but in the world of dividends, when payments can come at any time, it can be extremely complex to keep a handle on everything, even to know when to reinvest the dividends you have received. The DRIP handles all that for you and gives you peace of mind that you are making the most out of your dividends. If the growth from the company is stable it can also lead to much greater earnings in the long run.
10. Research Companies Intelligently
The focus of investment is, naturally, finances. So, usually, investing in a company with a proven history of growth and stability with no cause to give you any alarm financially speaking is a good bet. However, increasingly we live in a world where personal reputations and personal identities get tied into corporations. The moral outlook and behavior of the board members of a huge corporation matters more and more in an age when media scrutiny is so intense and information travels across the globe in under a second. A company who make a lot of money and have done so for years but who have a shaky history in terms of their PR cannot be relied on in the long term.
All it takes is one highly publicized scandal for the company’s stock, in a market sense and a socio-economic sense, to plummet. Companies with a clean slate, in terms of their executives and their products are much safer than companies whose reputations hang on the decisions and behavior of their CEOs. It takes some doing, but thorough non-financial assessment of potential investment opportunities is crucial to a stable portfolio.
Do you want to have a true financial freedom without breaking the bank on your current level of income? Then reading this article is your best bet this year. It surely going to arm you with right skills and strategies for investing in your future right from this moment with effective long-term investing techniques that works.