The investment game needs patience, discipline, and perseverance. And you need to plan, in order to succeed — irrespective of whether you want to build sizable retirement savings, accumulate funds for your child’s higher education, or beat inflation.
How to do it? Let us find out:
1. Know Your Financial Goals
The ultimate objective of any investment is to achieve your financial goals.
Before getting into long-term investing, have a holistic view of your goals.
Divide them into three broad buckets – short, medium, and long. Short-term goals have a time horizon of six months to a year, and medium-term goals require three to five years. On the other hand, long-term goals have a time horizon of above 10 years or more.
Once you know your goals, you can estimate the money required to accomplish them. It will help you sort out your finances and, more importantly, encourage you to save and invest in them.
So, get back to the drawing board, determine your life goals, take stock of your finances and get going.
2. Start Investing Early
Long-term investing requires discipline and patience, and it is vital to start early if possible.
An early start promotes financial discipline and brings the compounding effect into play — which has a multiplier effect on wealth creation.
Being an early bird in investor has its perks, and it gives your money more time to grow and counter inflation.
3. Long-Term Investment
Another way to remain invested is to invest in instruments with a long lock-in period.
The lock-in serves a dual purpose by not allowing premature withdrawals so that compounding interests may take effect.
However, to maximize your gains, you need to remain invested for more than five years.
4. Investing in Equities
Equities have the potential to deliver inflation-proof returns in the long run but may prove to be volatile in the short term.
The lure of earning inflation-indexed returns from equities prompts many investors to stay committed to their investments for the long run.
For example, when markets nosedived in March 2020 after the start of the Covid-19 pandemic, many investors remained committed despite seeing their returns fall sharply.
Their perseverance paid off when the markets eventually recovered and returns soared.
Equity investment also builds patience and helps one to stay committed for the long run.
5. Ignore Market Noises
Markets are full of noise especially when things go wrong. More often than not, they force investors to act under impulse, resulting in flawed investment decisions.
Suddenly, you may find everyone becoming an expert and sharing opinions.
For long-term investing, you must ignore noises as they become distractions that impinge on your goals.
Look at the big picture and remain committed to your financial dreams, positioning, and goals if the situation demands.
While individual brilliance can help you win a trade or two, it takes a collective effort to win in long-term investing.
You cannot rely on one financial instrument alone. You should diversify your holdings across different asset classes – ie. equities, bonds, and gold, among others. For example,
You can spread your investments across large-cap, mid-cap, and small-cap funds.
Optimal diversification is an effective risk hedging strategy.
It also provides stability to your portfolio and creates a balance between risk and reward.
The Bottom Line
Long-term investing has multiple benefits and doing it the right way can help you stay on a solid financial footing to help you chart your path to financial freedom.