Thursday, June 13, 2024

The Best Tips And Ideas For Successful Long-Term Investing

Looking to have success investing for the long term – here are some great tips.

Sell Off A Bad Asset

There is no knowing if a bad stock/investment that has been on a continued price decline will recover on time to bring back your money with a tidy profit. This is why all investors must retain an exit strategy all the time for all their investments – profitable or loss-making.

Admittedly, taking a loss is always hard, financially and psychologically. However, there is no shame in following the right professional advice to stop further resource hemorrhage.

From the onset, and to avoid potentially-bad buys, it is best to evaluate the benefits of investing in certain stocks and whether the price will increase in the short and long term.

Focus On The Big Picture

Do not lose confidence in your investment plan because of short-term instability. On the other hand, it is better to focus on the long term price trajectory of your investment and avoid rushed decisions over momentary dynamics.

A limit versus market order may save you some cents but there is little value overstressing to compete fiercely to save every dime. Like some traders, you can benefit from the minute-to-minute price variations and make some gains, however, long-term investment has more benefits from the extended time that could last for one year or more.

Do Not Invest Based On Market Euphoria

It does not matter the source of the investment lead but you must conduct market research and due diligence to determine the viability of the stock before putting your resources in the stock.

Sometimes fluky leads may work but deliberate investment and investment trusts and related decision making must be based on comprehensive research to correctly determine parameters such as price and sale rate, among other factors. 

Develop An Investment Strategy And Follow It Consistently

There are many criteria used to select the shares to buy; however, it is vital to remain faithful to one trading or investment strategy. Investing with the sole aim of exploiting price variability through predictions is called market timing and it is not a proven way of growing wealth.

For instance, renowned businessman Warren Buffett is often remembered for sticking to his guns and employing value-focused approaches to successfully guide his company during the dotcom boom of the late ’90s when the majority of startups were collapsing.

Do Not Overly Focus On The Price-Earnings (P/E) Ratio

Price-earnings (P/E) ratios are an important metric for stock valuation. However, overstressing on this metric alone is not a complete way of determining the true value potential of the investment. The best valuation process needs to use the P/E ratio together with other analytical methods.

According to professional recommendations, P/E ratios cannot be used independently to determine if a share is undervalued when the P/E ratio is low or overvalued when the P/E ratio is high.

Maintain A Long-term Approach, Fully Focusing On The Future

The successful investment significantly depends on predicting the future market conditions. We might use historical data to gain some market insight but past data cannot be entirely relied upon.

Peter Lynch, in his book “One Up on Wall Street” of 1989, asserts the need to use future value/potential of the stock to ascertain its viability instead of using historic performance alone. For instance, Lynch notes if he relied on past performance, it would have been near impossible for him to invest in Subaru shares because they had increased in value twenty times before. In such a sense, he would have never anticipated the stock value could go any higher. 

However, after studying the stock’s fundamentals, he noted that Subaru’s stock price was still significantly low and there was enough room for value increase. He then bought the shares and watched the value increase seven times.

It is easy for new investors to get swayed to enter the market by short-term price increases. However, you will realize higher returns if you invest in the long-term. Indeed, there is significant profit-making potential in short-term investment, however, it is a trading strategy with greater risk compared to buy-and-hold trading strategies.

Remain Flexible To New Investment Ideas

Many companies prefer to use their household names as their brand. However, most successful investments are not limited to the brand. Simultaneously, thousands of startups and small companies can grow into first-class within a short time. Data shows small-company stocks have realized more returns compared to the large-cap companies in the same industry.

For example, between 1926 and 2017, the small-cap stock realized an average of 12.1% increase in returns while Standard & Poor’s 500 Index (S&P 500) recorded a rate of 10.2%.

This does not mean investors should focus their investment on small-cap stocks only, it is best to remain flexible to investing in big companies outside the Dow Jones Industrial Average (DJIA). 

Avoid Investing In Penny Stocks

Some new investors think there is less risk in buying stocks of low prices. However, there is no difference if you lose all your stock investment whether it is priced at $5 or $75 – in both cases, you will have lost 100% of your capital investment. This sis because downward risk is present in all investments.

In most cases, and contrary to what penny-stock investors may think, low-priced stocks carry greater risk than high-price stocks because penny stocks are less regulated and face high price volatility.

Do Not Forget The Impact Of Tax; However, Do Not Fret About The Tax

Over concern for tax treatment can greatly influence investment decision making in the wrong way. As much as tax considerations are important, the value and potential of stock are secondary and independent of tax implications.

Remember, it is always important to try and reduce the tax liability in your investment, however, realizing a high return from the investment should be the superior objective.

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