Basic Rules For Long-Term Investing
Eric Bowie
Contracting Officer at U.S. GSA | Financial Mentor & Coach at Smart Money Bro on YouTube where I help people make, save, and invest more money
Long-term investing can be easy by applying some basic strategic rules.
In this week's article, I have compiled 7 basic rules to simplify the process of long-term investing.
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Whether you want to invest in the stock market for retirement, for your children's education, or simply to grow your savings, when you put money to work into the market, a little bit of strategy will go a long way.
Consider these 7 best practices to help reach your long-term investing goals.
#1. Create An Investment Plan Of Action - Your long term investments should be in step with a written investment plan. Establish your investing goals and time horizons, and stick with it.
Your investment plan should consider at least the following:
#2. Commit To Consistency Over Time - Wise investment choices compound immensely over time. Remember, the secret to long term wealth is not timing the market, but it is time "in" the market.
Patient investors gain a larger profit by allowing their investments to grow over time. This is because the buy and hold strategy of long-term investing specifically caters to the positive effects of compounding. Consistently buying and holding will deliver amazing benefits over a long period of time.
This takes both commitment and discipline. Read more
#3. Invest In Things You Understand - Knowing what you are investing in helps you make better investing decisions when it comes to evaluating the investment vehicle.
In other words, if you do not understand a product, a company, a business model, or an investment vehicle, you have two choices: 1. learn it before you invest, or 2. leave it alone.
Stick to investing in things you understand and therefore are more competent in.
#4. Risk What You Can Afford To Lose - Only risking what you can afford to lose lowers your overall risks.
It is also important to know your own risk tolerance, which is how much risks you are willing to take. This can increase your chances of being successful in the long run.
Successful investing is about managing risk, not avoiding it - Benjamin Graham
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Just keep in mind that all investments come with a risk. So be sure to only risk what you can afford to lose.
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#5. Diversify Your Investments - Since we are on the subject of risks, one of the best ways to mitigate risks is simple diversification.
When you diversify your investments into various sectors, markets, assets, and investment types, you?reduce the amount of risks you are exposed to in an effort to maximize your returns.
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Although there are certain risks you can not avoid, such as systemic risks, you can hedge against non-systematic risks by ensuring you have long term diversification.
It is also important to separate the term "diversification" from the term "allocation":
#6. Reinvest Dividends - Dividend reinvestment is when you invest the cash dividend paid by a company or fund to buy more shares of that same investment.
Reinvesting your dividends?allows you to buy more shares and build wealth over time, and it is more likely to increase the value of your investment than simply taking the cash.
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Any investor can use this strategy to automate the purchase of new shares in that same stock, exchange-traded fund (ETF), or mutual fund. Many dividend-paying companies offer investors the opportunity to participate in a dividend reinvestment plan (also known as a DRIP). How to compound your wealth with DRIP investing.
#7. Avoid Panic Selling - Panic selling usually occurs during stock market dips. Often times, selling during the dip is a big investment mistake.
Be patient and do not panic!
How do you avoid panic selling?
Bottom Line: Create your investment plan in writing, be consistent over a long time, risk what you can afford to lose, re-invest your dividends, invest in things you understand, spread your financial investments into different baskets, and do not let fluctuations in any given market distract you from your long-term investing goals.
If you are investing for the long haul, don't get too greedy and don't get too scared.
The best person to take care of the old you is the young you.
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Disclaimer: I am not a licensed financial advisor. This article is not affiliated with any government agency or any official government business. This article is for informational and educational purposes only.
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2 年This is some of the best advice on investing. Business and Investing is the ultimate path to wealth. Saving is fine, but you should save to invest i.e. put money to work to reproduce more money. Thank for sharing.