Do you want to start investing long-term? Then we suggest you take a look at some of our most useful tips based on our own experience and knowledge in the field. These 10 tips on long-term investment are aimed at everyone looking to invest in stocks or other securities over a longer period of time.
1. Focus on the Long Term
This might seem obvious, but it’s actually something that many investors mess up. In order to be successful in the long term, you need to change your mindset. A long-term investment can stretch for several years and you have to be willing to wait. The basic strategy with a long-term investment is to invest, keep an eye on it, and then let it go for as long as it’s needed. You should eradicate any idea of selling the asset sooner than you have planned unless absolutely necessary. Without the ability to focus on the future you won’t be able to succeed.
If you’re more interested in shorter investments, we suggest you read our day trading guide.
2. Find the Right Security and Diversify
Finding the right security is extremely important, and you need an understanding of which markets are best in the long-term. For example, the forex market is not fit for long-term investments but more so for day trading. On the other hand, the commodity market is good for short to mid-term investments. However, if you’re looking to invest over a few years time you traditionally have two choices, either you invest in the stock market or you buy property, we recommend stocks.
We say stocks and not a stock because it’s never a good idea to only buy one stock and we suggest you try to create a decent portfolio consisting of several prominent companies. Another good way of diversifying your portfolio these days is by investing in cryptocurrencies. No one really knows where the cryptocurrency market is headed but there are many indicators showing that the market will grow even further.
3. Decide on a Strategy
This is a personal choice and it’s of the utmost importance. Before you dive headfirst into a long-term stock portfolio, you need to have some form of a strategy. However that strategy looks is up to you, and there are several options that have been tested and proven to work over time. The most important part here is that you find a strategy and then stick with it. As soon as you start switching strategies, you start to lose focus and risk ending up losing money instead of gaining.
4. Don’t Trust Tips – Always Do Your Own Research
Honestly, when it comes to trading and long-term investing, you can’t trust anyone else. It is, of course, okay to take advice and listen to other people’s tips but in the end, you need to do your own research. Even the best investors are wrong sometimes and just because they’ve made a few good investments doesn’t mean they are always right.
Your job as a long-term investor is to study the market looking for potential opportunities and you should really do this on your own. Other more knowledgeable traders can be used to guide you in the right direction but before you invest your money you have to be sure that you actually know what you’re doing and why you’re buying a specific security. It really doesn’t matter if it’s your boss, a professional trader, or Warren Buffett – always do your own research!
5. Use the Right Broker
This goes without saying but before you start putting your money into the stock market, you have to find a reliable broker or service to use. Even though there are many scam artists in the industry, they tend to be quite easy to avoid. Also, there are a few easy rules to follow such as only using regulated and authorized brokers, always looking for reviews and other trader’s opinion on the broker, and finding a service that you really feel comfortable with.
We have spent a lot of time and effort into recommending some of the best CFD brokers on the market, and even though CFDs aren’t optimal for long-term investments, some of the brokers do provide good opportunities. For example, if you want to diversify your portfolio with cryptocurrencies IQ Option is a fantastic alternative with a great and easy-to-use e-wallet.
Also, most of the world’s leading CFD brokers are owned and operated by major financial institutions that also provide long-term investment services.
6. Keep Your Head Cool and Don’t Panic
Initially keeping your head cool and your eyes on the objective can be one of the most challenging parts of a long-term investment strategy. But don’t worry, it usually gets easier with time. You should be prepared to experience some short-term price falls and even negative price trends that stretch over a few months, and you can’t panic over that. Don’t expect a security to only experience growth over a 10+ year period.
What separates the really successful long-term investors from regular investors is the ability to stay calm even in the stormiest waters. Prices and markets dip all the time, but unless it’s a complete crash, prices almost always rebound to new heights. And don’t forget that price falls can be great investment opportunities.
7. Have an Exit Plan
That being said you also need to know when it’s time to cut your losses. Not every investment will be a great success and at some point, you will have to acknowledge the fact that it might be time to sell your stocks in a certain company to reinvest in another, even if you end up losing some money along the way. By doing proper research before you invest, you can avoid having to sell before your goals but at the same time, you need to set a limit for when it’s time to bite the bullet.
Sometimes when the market turns for the worst, the best strategy is to sell your stocks to buy gold since gold tends to thrive when the stock market is struggling. When the stock market has calmed down and is about to start growing again, you can reinvest.
All of these decisions should be a part of your initial strategy so that you know what to do before it happens. Having an exit plan is not a weakness but rather a safety measure.
8. Avoid Penny Stocks But Be Open Minded
Needless to say, investing in penny stocks isn’t the best option for a long-term investment strategy. Penny stocks are characterized by erratic market movements and uncertain futures and the risk of investing in them is not worth it for the long haul. In fact, you shouldn’t start trading penny stock until you have a greater understanding of how the stock market works and have experience successfully trading blue-chip stocks.
However, this doesn’t mean you should only focus on the biggest stocks on the market. Yes, it can definitely be a good idea to invest in large and well-established companies such as Amazon or IBM, just don’t forget that you have plenty of options. There are literally hundreds of established companies that have great potential but that are often overlooked. In order to find the best value for your investments, your research has to be comprehensive and inclusive, and you shouldn’t be afraid of investing in a “smaller company” if you see the potential.
9. Don’t Be Afraid to Take a Step Back
We’ve already mentioned this, but it’s worth repeating again. If you do proper research in advance and only invest in securities that you believe in, you should be able to take a step back and let the investment handle itself. It’s not feasible to check an investment several times a day if you’ve set a 10-year goal for that security. It will only add stress to your life and eventually, it will drive you to insanity.
Instead, we suggest that you stay updated on the market conditions with the latest news and set a schedule for when you should check the status of your investment and compare it to the average market prices. A good way of making sure you never miss an important event is to sign up for our newsletter. You can either subscribe to all of the news we publish or only news related to one security.
10. Invest Early and Be Patient
This tip sort of goes hand in hand with the last one. If you set a goal for 10 or 15 years for one specific security, you also need to be willing to wait that long before you cash out. Remember that the longer an investment has to grow the better your potential to make a big profit is.
Patience is a virtue in most aspects of life but especially when it comes to long-term investments. Also, don’t be afraid of investing more money into the same security. One good advice that we like to share with investors is to reinvest dividends into the stock since it adds value to your stock investments on a yearly basis.