Balance your investment plan A quote attributed to Titus Maccius Plautus, a Roman comic playwright, has relevance toâ¦
Balance your investment plan
A quote attributed to Titus Maccius Plautus, a Roman comic playwright, is relevant to investors today: âIn all, the medium term is the best: anything in excess causes problems for men. Balance is the ideal goal for long-term investing. Needs change over time, and shortcut strategies that may work one year may prove ineffective or even costly the following year. US News asked experts for some of the smartest investment strategies to use throughout your life. Here’s a look at the 10 best long-term investing strategies.
Have a financial plan.
A financial plan can help you determine your tolerance for risk at different points in your life as you move towards a clear retirement goal. Sticking to a solid plan can also 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 stage of their life, while understanding their risk profile, the investment strategy will be designed to help them stay the course and eliminate the possibility of seeking investments based on emotional triggers. Said Jack McGowan, CEO of Two Point Capital Management. A financial plan will help you focus on the types of stocks and bonds in your portfolio and whether you are going for a traditional 60/40 portfolio or adjusting that mix. âOnce you understand your target return and your tolerance for risk, an appropriate asset allocation can be established and appropriate benchmarks can be applied,â says KC Mathews, chief investment officer at UMB Bank.
Start investing as early as possible.
The longer the money is invested, the more growth potential it has. âWhen you start earlyâ¦ not only do you get the cumulative effects of capital, but you also create the ability to buy at an average cost over time,â says McGowan. Someone who contributes $ 1,000 a year to an IRA between the ages of 20 and 30 and then quits (it’s not that quitting is a good thing) has an advantage over someone who starts at age 30 and invests $ 1,000 per year for 35 years. Assuming an annualized return of 7%, the first person will be $ 168,515 at age 65 and the second will be $ 147,914. âInvest early and often,â says Robert Johnson, professor of finance at Creighton University.
Don’t try to time the market.
Time is your friend in the long term market, but you shouldn’t be trying to time the short term market. âIt requires two decisions: when to go out and when to go in,â McGowan says. “(It’s) hard to do both over time.” Being obsessed with getting out and back at the right time can miss the big days of recovery and can dramatically reduce returns for long-term investors, says Mathews. âSince the best performing days tend to be clustered together and tightly after the worst days, staying invested throughout market cycles can help achieve better long-term results,â says Theodore Schneider, portfolio advisor at 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 follow. Make sure you understand the industry, industry, and company if you are considering investing in any particular security. âA lot of investors are drawn to companies that make products they love and use,â says Johnson, but they âoften mistake a good product for a good investment opportunityâ. If you are going to invest money in a new restaurant chain that is becoming popular or a new product that is praised by your friends and family, also make sure you know if these businesses are sustainable and have attractive prices, he said. However, many individual investors neither have the time nor the expertise to understand the intricacies that make certain stocks in specific sectors good investments, McGowan explains. It doesn’t mean that you can’t invest in them. âThe most important thing is to understand the investment approach as it will provide clarity to every investment,â he says.
Add a 401 (k) match to your mix.
There is no shortage of investment strategies, but free money is the one guaranteed, risk-free homerun you will ever get. Yet many people still do not participate, even when they have access to a 401 (k) with a matching employer. Don’t be like them. âA 401 (k) can provide free money, systematic investment, and exit barriers,â McGowan said. âBy creating your 401 (k) or investment account, you are making yourself and your future a priority. Verbatim Financial Founder John Stoj recommends setting up automated payroll deductions up to the maximum amount allowed for a 401 (k), then adding other investment savings available to a brokerage account taxable. You can also consider a Roth 401 (k). âRoth contributions come in after tax, but go up and out tax-free if you follow the rules,â says Ryan Johnson, director of portfolio management and research at Buckingham Advisors. You can also take more risk with Roth assets, as they may be the last source of funds used during retirement, he says.
Establish and stick to sound cash flow management.
One way to do this is to set up automatic retirement savings contributions. But you can also apply the strategy of automatically investing money (at least every month) during your years of work in other areas. You may want to set up a rainy day fund for three to six months of living expenses in a savings account. While you are working at it, you can also fund your 401 (k). Once these are well established, or even when you get your savings off the ground, you can also set up automatic contributions to a brokerage account. Of course, while you are doing this, you will have to make choices about how to spend your money each month. Do you really need that subscription to your fourth streaming service?
Set it up and forget about it with funds.
Once you have decided how much will invest in liquid savings accounts versus brokerage and retirement accounts, you might just want to sit back and watch your investments grow over time. After all, you are not day trading here. âFor the vast majority of people, set it and forget that this is the best long-term investment strategy,â says Stoj. One way to do this is to access the stock market through low cost index funds instead of trying to select individual stocks. âIt’s likely that the only fund someone will need for most of their investor life before retirement is a total market fund, like Vanguard’s Total Stock Market ETF (ticker: VTI),â says -he. According to Johnson of Creighton University, most investors should be guided by the âkeep it simple, stupidâ mantra. âInvestors just can’t afford to make oversized bets on individual securities,â he says. âTrying to pick winners, for the most part, is a loser’s game. The solution is to invest in diversified funds, and you don’t need to pick those winners.
Make stocks the cornerstone of your strategy.
Bonds are an important part of any portfolio for stability and income. But with today’s low interest rates, stocks are likely to be your biggest income, whether it’s price appreciation or dividends. âA dividend-paying stock portfolio can complement your bond portfolio,â says Mathews. “Many quality dividend-paying stocks increase their dividend each year, protecting your purchasing power.” Compare that with bonds that have a fixed interest payment, leaving you open to inflation eroding the value of those payments. âThe surest way to build real long-term wealth and achieve financial security is to invest in the stock market,â said Johnson of Creighton University.
Diversify for a smoother ride.
One of the advantages of long-term investing is that time tends to dampen volatility. You can also manage volatility with diversification. In addition to diversifying a portfolio with bonds, you will also want to own a range of stocks or funds in different industries and geographies. Within stocks, consider growth stocks versus value stocks. Beyond stocks and bonds, you may want to invest small portions of your portfolio in other asset classes. âBalance your choices with a well-balanced portfolio of global and domestic stocks, bonds, cash, gold and maybe cryptocurrency, which could prove to be a good hedge in case we would face many years of high inflation, âsays David Weliver, founding editor of personal finance site Money Under 30.
Rebalance only if necessary.
That last tip comes down to having a solid financial plan. While you have the best plan and the best allocation strategy, you will need to change your portfolio from time to time. It is not the same as timing the market. Rather, it’s about buying or selling to bring your portfolio back to your original financial plan. Suppose you went for a 60/40 portfolio, but stocks saw a massive rally while bonds largely stayed put. This means that the original ratio will be out of whack. So you may have to sell some of your stocks or buy other bonds to get back to your strategy. Think of it as a focus of your long-term investment strategy.
10 long-term investing strategies that work:
– Have a financial plan.
– Start investing as early as possible.
– Don’t try to time the market.
– Invest in what you understand.
– Add a 401 (k) match to your mix.
– Establish and stick to sound cash flow management.
– Set it up and forget about it with funds.
– Make stocks the cornerstone of your strategy.
– Diversify for a smoother ride.
– Rebalance only if necessary.
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10 long-term investing strategies that work originally appeared on usnews.com