Bring balance into your investment plan
A quote attributed to Titus Maccius Plautus, a Roman comic playwright, has relevance for today’s investors: “In everything the middle course is best: All things in excess bring trouble to men.” Balance serves as the ideal goal for long-term investing. Needs change over time, and shortcut strategies that may work one year can prove ineffective, and even costly, the next. U.S. News asked experts to weigh in on some of the soundest investing strategies to use throughout your life. Here’s a look at 10 of the best long-term investment strategies.
Have a financial plan.
A financial plan can help you figure out your risk tolerance at different points in your life as you move toward a clear retirement goal. Sticking with a sound plan can also help keep you from trying to time the market based on emotions and can help you stay disciplined, which is a key factor in long-term investing . “If an investor is honest about what they want to accomplish at each phase of life, along with understanding their risk profile, the investing strategy will be designed to help them stay the course and remove the opportunity to chase investments based on emotional triggers,” says Jack McGowan, CEO with Two Point Capital Management. A financial plan will help you focus on the types of stocks and bonds in your portfolio and whether you opt for a traditional 60/40 portfolio or you adjust that mix. “Once you understand your return objective and risk tolerance, a proper asset allocation can be established, and appropriate benchmarks can be applied,” says KC Mathews, chief investment officer at UMB Bank.
Start investing as early as possible.
The longer money is invested, the more potential it has to grow. “When you start early … not only do you get the compounding effects of the capital, but you also create the opportunity to buy at an average cost over time,” says McGowan. Someone who contributes $1,000 a year to an IRA from ages 20 to 30 and then stops (not that stopping is a good thing) has an edge over someone who starts at 30 and invests $1,000 annually for 35 years. Assuming a 7% annualized return, the first person will have $168,515 at age 65, and the second will have $147,914. “Invest early and often,” says Robert Johnson, a finance professor with Creighton University.
Don’t try to time the market.
Time is your friend in the market over the long run, but you shouldn’t try to time the market in the short term. “It requires two decisions: when to get out and when to get back in,” McGowan says. “(It’s) tough to get both right over time.” Obsessing about getting out and back in at the right times can lead to missing out on big recovery days and can significantly lower returns for long-term investors, says Mathews. “Given that the best performance days tend to be clustered among and closely after the worst performance days, staying invested through market cycles can help achieve better long-term results,” says Theodore Schneider, portfolio advisor with Round Table Wealth Management.
Invest in what you understand.
Stay away from investment strategies that are too obscure, complex or out of your wheelhouse to keep up with. Make sure you understand the sector, the industry and the company if you’re going to invest in a particular stock. “Many investors are drawn to companies that produce products they like and use,” says Johnson, but they “often confuse a good product with a good investment opportunity.” If you’re going to put money in a new restaurant chain that’s becoming popular or a new product that’s being praised by friends and family, make sure to also find out whether those companies have a sustainable business and are attractively priced, he says. However, many individual investors don’t have the time or expertise to understand the intricacies that make specific stocks in specific sectors good investments, McGowan says. That doesn’t mean you can’t invest in them. “The more important thing is to understand the investing approach as it will provide clarity to each investment,” he says.
Add a 401(k) match to your mix.
There’s no shortage of investment strategies out there, but free money is the only guaranteed, risk-free home run you’ll ever get. Yet many people still don’t participate even when they have access to a 401(k) with an employer match. Don’t be like them. “A 401(k) can provide free money, systematic investment and some barriers […]
10 Long-Term Investing Strategies That Work
Bring balance into your investment plan