When it comes to investing successfully for the long haul, there are quite a few things that you must keep in mind. Firstly, long-term investments should ideally be tied to a specific macro goal or blueprint that you have. Secondly, you should understand the sheer amount of commitment or financial discipline required for successful long-term investments. Last but not the least, these investments should not eat into short-term goals, requirements and your basic and emergency requirements from a financial standpoint.
Too many people make the mistake of locking money away for the future while compromising on present needs and financial requirements. This often throws family budgets and finances into jeopardy as a result. There are multiple investment options and channels for growing wealth and short/long-term investments may be chosen, depending upon liquidity levels and financial objectives alike. There are several investment methods including FDs (fixed deposits), PPF (public provident fund), bank deposits and even investments in mutual funds, stocks/shares and likewise.
Patience and perseverance are highly important attributes when it comes to making successful long-term investments. This is something that you should always keep in mind. Assess your current financial trajectory and your own risk appetite along with your temperament, i.e. whether you will be able to stay disciplined as an investor. Thereafter, you can sign on the dotted line and look forward to steadily accumulating wealth to meet future needs. Now, coming to wealth creation, it has been seen that long-term wealth creation best comes from stock/share market investments where returns are exponentially higher than those generated by other low-risk investment avenues. Mutual fund investment is a good option as well since they spread out the risk. However, while the risks are sizable, nothing quite compares to the stock market in terms of generating wealth for the long term.
Major tips for investing successfully over the long haul
Here are some aspects that you should always keep in mind when it comes to making long-term investments.
- Adequate Knowledge
It is not enough to be interested in investing for the long term. You should always do your homework and research on the investment channel in question, i.e. mutual funds or stocks/shares. Read up on the investment method, market trends, calculate forecasted returns, how much you need to invest for accumulating a specific amount in the future, calculate what you need in the future as per your goals and also check whether the investment option like a mutual fund, stock/share of a particular company or any other investment scheme has done well over the years. Invest on the basis of your risk appetite and be fully in the loop about terms and conditions and charges/costs to be incurred. If you have complete knowledge of what you are doing, then you will always be taking informed decisions, something that is of vast importance.
- Always have faith in businesses/firms
When you are investing in mutual funds, make sure that you invest in the right mutual fund product and have ample faith in the company/organization/firm operating the same or the companies/business sectors in which the mutual fund is investing. It is the same for buying stocks/shares; you should essentially invest in a particular business/company/sector that you would like to be a part of. Reading up about the organization makes a lot of sense in this regard since you should always have some industry knowledge. Predicting the future is impossible although you can at least have a basic idea, looking at past and present trends and the future prospects of any particular business sector/company.
- Blind tips are not acceptable
Many a time, people come across tips and insights given by the most random people apart from their families, colleagues, friends and acquaintances regarding the best stock to invest in or the suitable mutual fund to purchase and so on. You may also hear of schemes with fantastic returns in the long term. Some tips may well prove beneficial but you should always check the facts before deploying your hard-earned investment. Decisions should be made on the basis of research and your own judgment; do not blindly rely on tips and insights from others.
- Avoid panic
Panic is your worst enemy; do not panic in case of any market volatility in the short term or there are any fluctuations in the market. Do not panic in case returns are temporarily low; you have to keep the faith and stay invested for the long haul in order to reap rewards. The success of your long-term investment depends on your focus without taking any sudden decisions.
- Do not over-emphasize on P/E ratios
In case of stock investments, you should refrain from over-emphasizing on the P/E ratio or price to earnings ratio while you choose stocks. You should not depend on a single parameter while choosing which stocks to invest in. A lower ratio does not always mean that a particular share/stock remains undervalued while a higher ratio will not always be the best indicator of overvaluation of any stock. Instead, you can check other things like the balance sheet and cash flow of a company that can help you make an informed decision as you will be knowing a lot about the company. Online investment apps can help you in gathering this information in case you are wondering if you can get it all at one place.
- Penny stocks are best avoided
Again, in relation to stock market investing for the long haul, make sure that you avoid low-priced stock options like penny stocks. There are misconceptions that these stocks lead to reduced losses during market fluctuations/falls. However, you should always go for high-quality stocks instead. Penny stocks are riskier and speculative by nature owing to lower liquidity, limited information disclosure and smaller shareholder volumes.
- Have a definite strategy in place
You should always have a clearly defined blueprint/strategy in place for your investments. Always plan on the basis of your financial goals in the future and the returns/corpus that you wish to accumulate. You should also strategize on the basis of your current risk appetite and whether you can invest more in the future among other factors.
Accumulation of a solid corpus/wealth is the biggest purpose behind investing for the long haul. However, earning dividends can be great options for generating passive income. Whenever a company profits, a specific profit percentage will be distributed amongst shareholders as dividends. Having an investment that offers returns and regular income is a great option for the long term. Additionally, there are several other income-based or pension plans available along with mutual fund schemes. Take a careful look at these.
- Keep the future firmly in mind
By this it means that you should always be looking to forecast future trends long before they actually happen. You should re-aligning your portfolio for better efficiency based on your research and understanding of current trends and how they might pan out in the future. This will help you keep syncing your portfolio accordingly for earning better long-term returns.
- Always have an open mind
Long-term investing requires not just financial discipline, homework and patience; you need to keep an open mind as well. You should always choose mutual fund plans or stocks with an open mind since several small investments/players may go on to become success stories of the future. Choose on the basis of merit.
Keeping the above mentioned pointers in mind will help you invest more successfully for the long term.