You may be an incredibly savvy investor, and in the stock market there aren’t any rules without exception, but for a long-term perspective, we’ve put together some general principles for you to look at.
It doesn’t matter whether you’re a new investor or you’ve been doing it for years, these fundamental elements are crucial:
Ditch the “Hot Tip”
It doesn’t matter whether this “hot tip” comes from your cousin, brother or even your broker, don’t take it as the law. Whenever you make an investment, you need to be clear why you’re doing it. This is why you should always do your research of a company before you decide to inject your hard-earned cash into it.
When you rely on a bit of information from someone else, it’s not just an easy way out, but it’s also a little bit like gambling. With a bit of luck, the tip might come off, but to be successful in the long run, you need to make sure you’re an informed investor.
Be Careful When Investing Beyond Your IRA and 401(k)
Hans Scheil is an investment expert and advises that if you’re going to invest beyond your IRA or 401(k), you should only do this when you’re maxing out these retirement funds comfortably. He explains this is because of income taxes. Therefore, when deciding and planning how much you’ve got to invest, you should look at where the additional money is coming from (e.g. a savings account, gift, the sale of an asset, a bonus inheritance or regular income), when you might want or need the money and how much of a risk you’re prepared to take.
Don’t Lose Sleep Over the Small Stuff
Short-term movements aren’t something you should panic over when you’re a long-term investor. It’s important to look at the bigger picture when you’re tracking how your investments are doing, remaining confident in your choice rather than being nervous about short-term volatility.
Of course, active traders are going to be monitoring fluctuations on a daily (if not minute-by-minute) basis in order to make gains. However, for a long-term investor gains come from an entirely different movement in the market, and one that can occur over a number of years. Therefore, you need to remain focused on the development of your investment philosophy by constantly educating yourself.
Understand Your Existing Portfolio
Before you go ahead with a new investment, it’s important to ask yourself a number of questions and that you review your existing portfolio. Some of the questions you may want to ask include are your current investments meeting your expectations? Is your portfolio diversified? Are your investments performing well in relation to the markets and their risk?
By answering these questions, it should tell you whether or not you should be using your new money to invest in the same places.
Stick with Your Strategy
To fulfill investing goals and pick stocks, different people will choose various methods. And no single strategy is going to be better or more successful than another. However, once you’ve found your investment style, it’s important that you stick with it.
If you start to change between different strategies when you’re picking your stock, you’ll probably find that you get the worst out of each of these, rather than the best. For example, in the dot com boom during the 90s, Warren Buffett remained committed to his strategy, which had worked for him for many years. He was criticized by the media, but by doing this he actually avoided getting involved in tech companies that eventually took a nosedive.
Remain Focused on the Future
One of the hardest things about investing is when you’re trying to make good, informed decisions based on something that’s still not happened. However, it’s crucial you keep in mind that, even if you use data of times gone by when predicting the future, it’s still what actually happens in the future that’s most important.
Scheil advises that when you’re looking for investing strategies, it’s vital you stay in the stock market for a long period of time, so you can identify buying opportunities from market pullbacks. It’s also worth thinking about what stocks are going to have long-term value, even looking as far as 2050 when you’re making this decision.
Ask yourself, what’s going to earn you the most between now and 2050? Energy investments, goods, and services for the elderly, biotech and goods that are sold to help economies develop are a good place to start. He also recommends considering companies like Amgen, Tesla, CISCO, Apple, Google, and CVS.
You will find an exception to every rule, but as a long-term investor, it’s important to follow these principles when you’re thinking about your next investment.
Thomas Kent is a long-time investor and stock market enthusiast who likes to help others by sharing his insights online. His articles are available on finance and investing websites.