Tips for Long Term Investment – Concept, Benefits, Strategies, FAQs & moreLast Updated Date: Feb 17, 2023
Here we will discuss tips for long term investment and strategies for the same.
Often we think, investing in the stock market is like throwing money into the market and forgetting about it. However, it is not the complete truth.
To become a long term successful investor, you need to be aware of many things. Here is an article for all the long term investors to be successful at what they are doing.
What is a Long Term Investment?
A long term investment is when an investor purchases a financial instrument and holds it for more than three years and above.
The long term investor takes risks in terms of time. As the money remains blocked in the market for a long time.
However, the long term investment provides a higher return against the risk taken.
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Tips for Long Term Investment
long term investors need to plan a lot before they invest. After investing there is no such effort they need to put except tracking the portfolio.
Thus, before investing they need to put all the effort so that their investment can be fruitful. Here are some tips for those long term investors who want to make it big in the stock market.
Sell off Loss-making Stock – Tips for Long Term Investment
No one is perfect and so are their predictions. We cannot predict the right thing about a stock price movement or a company every time.
There are times when the analysis and prediction go wrong. So, if the prediction is wrong and you know the stock is making losses, you should sell it off immediately.
Do not be hesitated to accept your mistake. The sooner you accept your mistake and sell a loser stock, the better would be the performance of your portfolio.
Don’t have Blind Faith – Calls for Long Term Investment
By anyone we mean, literally, everyone who is suggesting your stocks, giving you tips. Do not ever believe anyone without doing your research.
Listen to everyone, do your own research, analyze the stock and then if you think the stock is right for your investment portfolio, then invest.
Price to Earnings Ratio – Tips for Long Term Investors
Price to earnings ratio is important but it is not everything in investment analysis. PE ratio is for analyzing whether the stock is overvalued or undervalued.
However, it can be flawed at times. The company can change the earnings to reflect a different scenario. So, you must consider other ratios as well along with the P/E ratio.
Don’t be Narrow-minded – Tips for Long Term Investing
We always think that large-cap stocks can provide higher returns. However, in reality, it is the opposite.
It is often seen that the small-cap or mid-cap stocks provide the maximum return compared to large-cap stocks.
So, don’t be narrow-minded to stick to the brand value. It doesn’t mean that a small-cap stock cannot earn you good return.
Always analyze the stock and the company’s plans for the future before investing long term.
Be Aware of the Taxes – Tips for Long Term Investment
Taxes on long term investment means capital gain taxes. You need to analyze whether the return of your investment is generating enough after paying off your taxes or not.
Don’t panic over Market Volatility
The best part about long term investment is that they are not affected much by the volatility of the market.
In long term investment, the gradual growth of the company makes the stock price grow and thus your investment also grows.
So, short-time volatility or economic turbulence cannot affect much.
Strategies are a must – Tips for Long Term Investment
In long term investment, you need to make strategies for investment. It is also important to stick to one strategy for long term investment.
If you swing between strategies, it will be difficult for you to maintain the pace and it will lower the returns.
We will discuss multiple strategies for long term investment in the next section of this article.
Keep a futuristic approach
When you are investing for the long term do not get enticed about short-term profits. Let the investment grow with time.
Avoid penny stocks – Calls for Long Term Investment
Some of the penny stocks can earn you great returns but for long term investment, do not go for them.
As these stocks are not that liquid, it will affect your investment portfolio. They are also not properly regulated so there is high risk of losing the capital you invest in them.
Strategies for Long Term Investment
Strategies are important for long term investment. Here are three such strategies which you can apply for long term investment –
Capital Growth Strategy
This strategy aims at increasing the value of the portfolio over a period of ten years. Using this strategy you can accumulate wealth faster and more than other strategies.
It is because aggressive asset allocation is the base of this strategy. Your investment portfolio will have equities, ETFs, and other securities having a good amount of risk.
Thus, this strategy is risky but at the same time, holds a high potential for wealth accumulation.
Current Income Strategy
This is a strategy where the investor invests in Bluechip and large-cap companies for consistent return and growth of an investment.
The risk of these stocks/investments is comparatively lower than other investment strategies. You can choose the companies having –
Demonstrated history of consistent return, dividends, and steady growth. Firms doing business in the low-change industry with high growth prospects.
Balanced Investment Strategy
This is a long term strategy where the risk is minimized. The strategy helps in finding stocks that have a medium to lower risk profile with a steady income/ return generation ability.
The portfolio will have both stocks with risk factor and bonds which hold minimum to no risk at all. This will even out the risk and return levels of the portfolio.
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Benefits of Long Term Investment
A long term investment is one of the most secure and beneficial investment plans.
Though there is a risk if you can properly plan your investments for the long term, nothing can be better than this for wealth creation.
Here are the reasons why long term investment helps investors–
It is one of the main weapons investors can use for creating wealth. Wealth accumulation is not a thing for short-term investment.
It is meant for the long term. The wealth is created because of the compounding effect mainly and you can save a lot of amount over a long period compared to a shorter period.
Less time and effort
While the wealth accumulation is higher in long term investments, the time and effort required are lesser.
Yes, you do not have to get glued to the trading terminal for investing in the long term.
When you are investing for the long term, you analyze the financial instrument, say stocks, its company profile, financials, fundamentals, and also you can do technical analysis and then invest if the stock is right for your portfolio.
After investing you can be easy about it and keep minimal track of the price and about the company.
Unless you see something drastic about the company or the stock pricing, do not try to manipulate the investment.
Lower cost of investment
The transactions in long term investment are less so the transaction fees are lower. The transaction fees are one of the main components of the cost of investment.
So, compared to the short-term investors, your cost of investment would be way lower. Moreover, the long term capital gain tax is comparatively lower than the short-term capital gain tax.
Conclusion – Tips for long term investment
So, to conclude, we can say that long term investment is great for wealth creation. It is on you how you strategize the investment portfolio and plan your investments.
You must make invest only after proper analysis and evaluating the risk and return factor.
A long term perspective is mandatory for long term investment, getting over the short-term volatility and not panicking is the key to success.
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FAQs – Tips for long term investment
What is wealth creation?
When you invest money for making it grow over time, the process is known as wealth creation. The creation of wealth means the creation of an asset, increase in its value.
What is meant by long term?
In the long term, in the stock market, investments are made for more than three years. When you retain the investment for more than three years, it is known as long term.
What is capital gain tax?
It is a type of tax that is levied on income generated from short-term or long term growth in the capital.
What is capital in the stock market?
The meaning of capital in the stock market is nothing but the investment you make at the beginning.
What is a bond?
A Bond is a fixed income instrument. It is issued by the government as well as public limited companies. They issue the bonds to borrow money from the investors.
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