These are turbulent times across all sectors of business, and those who are looking for the best place to invest can often get caught up in issues that incline them to look at the short term.
While it is important to stay up to date with economic news, and to know some of the basics, such as what is deflation and what is inflation, it can often be of benefit to investors to focus on the long term, rather than the short term.
Long-term investments entail acquiring an asset or making investments for over a year, typically for at least five years, with the intention of creating wealth. Many investors favor long-term stock market investments, but in addition to stocks, you can invest in other long-term assets, including real estate, gold and treasury bonds.
So, what is the best strategy to focus on for long-term investment? Here are five long-term investment strategies that can help you make better decisions in 2023:
Start now and stay long term
The equity market can never guarantee you a fixed return, but at the same time, the fact is that the earlier you invest and the longer an investment is held, the greater its growth potential. Rather than attempting to time the stock market, seek long-term investment options.
Set objectives and keep to them
Without understanding where you intend to go, you can’t work out the best path to get there, so you must first determine your destination. What are your wealth objectives? Then, establish your investable sum and determine your risk tolerance, annual return objectives and investment horizon.
Once you’ve established your investment objectives, adhere to them with every investment choice you make. It is advisable not to be side-tracked by slight changes in your portfolio, as they tend to correct themselves over time.
Diversify your portfolio
Don’t put all your eggs in one basket, says the old but wise proverb. Instead, you should place your investment eggs in multiple baskets. That way, you can continue to prosper even if one or two investments go wrong.
You could invest in two top companies that historically do well. That means, however, that the success of your investment depends solely on two stocks.
By contrast, if you took a balanced and diversified approach, perhaps splitting your investment between a variety of stocks, bonds, gold and fixed deposits, you will have some protection if the market falls or there is a decline in the value of one or more of your investments.
Review and rebalance
You may have heard that it is a good idea to purchase quality stocks and essentially forget about them for several years. This is not always a great strategy for long-term wealth creation.
You may not need to evaluate your portfolio returns daily but reviewing it each month or quarterly is essential even when you have a ten-year or longer investment horizon. Analyzing your investments can help you to recognize issues before they grow bigger.
For instance, if a particular stock that you decided to invest in after conducting extensive research continues to lose value for multiple time periods, this may be a warning and you might be better off selling that asset before it ends up losing a substantial amount of value.
In addition, you may occasionally need to restructure your portfolio to align it with your financial goals. If you would like large-cap stocks to account for 20% of your holdings, but because of market turmoil they only account for 15%, you may wish to rebalance your portfolio.
Focus on cash flow generation
Having a minimum number of investments in your portfolio that generate stable or rising cash flow is advantageous for wealth creation. A long-term share dividend strategy can be effective in this regard. Investing in stocks that pay a dividend is referred to as dividend investing. If you invest the money generated by the dividends, you could take advantage of compounding. You can also invest in income-generating assets aside from stocks, including treasury bonds and real estate.
If you invest wisely and with patience, investing can be your route to financial freedom. While it is possible to become wealthy quickly, this involves huge risks. If you want to boost your wealth in a less risky way, then following the strategies above, combined with taking the time to understand the principles of investment can be a good way to go.