Home Investment Long-Term Investing: Everything You Need to Know

Long-Term Investing: Everything You Need to Know

by Louise W. Rice

In 2012, Facebook acquired Instagram, a newbie company with a promising future, for $1 billion in cash and stocks. Ten years later, Instagram is estimated to be worth over $100 billion. In other words, Facebook’s initial investment grew 100 times.

Facebook acquiring Instagram is a basic example that describes what long-term investment looks like.

Long-term investing as a way of turning a profit means buying and holding assets such as stock, bonds, cash, commodities, etc. for an extended period, giving the return enough time to flourish.

Long-term investing has a myriad of advantages when compared to short-term investing (also known as “trading”). It’s especially a better choice when you consider transaction costs and task fees, the risk and return balance, and the time spent in the process.

So, here are our tips on the best long-term investments in the current market and the basic practices every investor should know.

Best Portfolio Assets in Long-Term Investing

Growth Stocks

Buying and holding growth stocks means investing in a company that has the potential to grow big because any earnings are reinvested in its development instead of paying dividends to its holders.

You might find this confusing if you’re thinking on a short-term basis. However, the point is that there’s a big profit when an investor in a growth stock sells his shares after the company’s worth reaches a high level.

Growth stocks are the type of assets all investors should have in mind while investing for the long term because of their high price-to-earnings ratio (P/E ratio). Making a careful choice regarding the industry and acquiring shares in a prosperous company by investing in its growth stocks is very likely to result in valuable returns later on.

Amazon.com, Inc. (AMZN) is a great example of a growth stock company with a high ranking.

Dividend Stocks

Another way for you to enrich your investment portfolio is by buying and holding dividend stocks.

Dividend stocks are a valuable asset if your strategy revolves around accumulating payments on a regular basis, regardless of whether you’ll decide to reinvest or simply enjoy the return.

This type of asset is usually obtained by investing in a well-established company with a steady income that pays dividends to its shareholders periodically.

As with any other investment, dividend stocks hold some level of risk depending on market fluctuations. However, compared to growth stocks, they are considered less risky.

One handy tool for calculating the return when investing in dividend stocks is MarketBeat’s dividend calculator. This tool considers key parameters such as dividend growth, dividend yield, distribution frequency, taxes, and time horizon to calculate how profitable your dividend investments may be.

Real Estate

We can’t dive into this subject and not mention real estate investments as America’s favorite long-term investments in 2022.

Despite its reputation of lacking diversification and having difficult liquidity, real estate is always an attractive investment choice. It can be an especially good investment choice to secure your savings from inflation.

The simplest way for you to add real estate to your portfolio and diversity your assets is by purchasing Real Estate Investment Trusts (REITs) or funds that invest in REITs.

Besides REITs, other techniques for investing in real estate are buying a property and renting it out, flipping houses, and taking part in Real Estate Investment Groups  (REIGs).

Bond Funds

Bond funds are a type of investment that can be both cost-effective and low-risk. The idea of investing in bond funds involves creating pooled investments in bonds of different types (government, corporate, municipal, mortgage-backed securities, etc.) and building monthly or annual income.

One of the many advantages of bond funds compared to investing in individual bond securities and other investments is the diversity you add to your portfolio with minimum investment. Remember, securing your portfolio in case of a market decline is a key factor in investing.

Before diving into bond funds investing, we recommend you do some further research into the current state of the best bond funds and learn which are most suitable for you.

Basic Practices for Long-Term Investing

Set Your Goals and Define a Timeline

The reason why an investor buys, holds, and sells assets is to gain profit. It’s that simple.

With that in mind, your long-term investing journey should begin by first setting clear goals, whether you’re investing for your wedding day, your retirement, building a home, or simply securing your and your closest ones’ future.

With a clear-cut goal regarding the amount of money you tend to earn and the reason behind it, you’ll be able to define a timeline for your investments. Setting a time frame that resonates with your plans is the best way to ensure your investments will bear fruit and yield great returns.

Long-term investing with reasonable expectations and a well-managed timeline is the best method you can use to fulfill your goals.

Develop a Long-Term Strategy

The process of investing where the objectives are clearly set out is much easier with a developed strategy.

When you work on mapping things out, you first need to understand your position on how to direct your actions and assets.

Analyze the market environment and devise a plan comprising your investment goals, asset allocation, risks, and risk tolerances. Of course, it’s best to hire an experienced advisor to do the job for you.

A good practice is to have your investment strategy written, resilient, and measurable. Following this strategy will help you stay on track as you inch toward your investment goals.

Asset Allocation

One of the basic principles in investing, whether long term or short term, is diversifying your portfolio.

By properly allocating assets in as many areas as possible, your investment portfolio won’t evaporate in case of a fatal drop in the investment value in certain areas. You’ll still be able to rely on steadier market conditions in other sectors where you’ve also invested.

In long-term investing, asset allocation will help you secure returns with less risk in comparison to investing only in one or two stocks.

A well-diversified investment portfolio, for example, would contain:

  • large-cap, small-cap, mid-cap, growth, dividend, or value stocks
  • ETFs
  • REITs
  • cash equivalents, etc.

Risk Management

One fundamental fact that every investor knows is there is no investment without any risk.

Safe investments such as bonds have lower yields compared to riskier assets such as stocks, which bring higher returns.

When investing long-term, time is always on your side. Don’t be afraid to take big risks at the beginning as much as you can tolerate. This approach will help you reach your goals, but, of course, you’ll need to stay wary and think every investment through. A natural reaction for a reasonable investor is to play it safe once enough risky investments are accumulated.

Understanding the risks and making an assessment before buying assets is crucial to avoid sudden shocks in case of market volatility.

Final Thoughts

Long-term investments are like fine wine – you need to preserve them long enough in order to enjoy the rich, seasoned taste later.

Whether you want to invest in stocks, bonds, real estate, or something else, before you invest, always enter with a deliberate strategy and do your research. Today’s market conditions can be tricky and ruthless.

With realistic expectations and reasonable actions, you’ll bring your investment portfolio on solid grounds for the long term.

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