Let’s start with the basic rule of successful investing: you don’t have to be smarter than others but you have to be more disciplined than the rest. This is a number one rule of a #1 investor Warren Buffett who has earned his 60 billion wealth through making successful long-term investments.
Long-term investing implies different principles and different strategies, comparing to short-term money-making. An investor should not focus on rapid profit growth as it implicates increased risks. Long-term investing usually involves bigger money, so assets of high risks and high volatility may damage the whole portfolio. Let’s take a closer look at keys of success in long-term investing.
1. Stay calm during panic time
If you are after strategic long-term goals – there is no place for emotions. Panic often happens on the market, especially when certain economic or political news arrives.
Your main task is not to get your attention distracted by intraday market’s ups and downs from your long-term goals. If you have bought shares of really good, reliable company – never follow the crowd that will provoke you to sell it each time the market is panicking.
The really great and worthy vehicles will show steady gradual growth year by year with some short and sometimes rapid downtrends in between. Buy and hold – is the golden rule of successful long-term investing.
2. Diversification is the key
Success in long-term investing is impossible without smart portfolio management. Diversification may somehow limit the potential profit received from the price growth of a certain vehicle, but along with that it also limits the risk and (as a result) an extensive money loss if the price plummets.
In order to diversify an investment portfolio, you must keep the pool of vehicles in balance, according to the level of risk of each asset.
Along with that, you should keep in your portfolio some “opposite” assets that means assets which price behaves opposite to one another when a certain economic situation occurs.
Also, there are investment instruments that are widely considered a safe haven, means whatever the circumstances or even global economic crisis when everything goes down in price, those vehicles go up in price as everyone starts converting their assets into that particular instrument: gold for instance.
3. Keep your long-term goals in mind
Keep your long-term financial goals in sight and never sacrifice them for the sake of the occasional risky deal, even if it promises a too “tasty” piece of a money pie. However, according to money management, if you can afford risking 20%-30% without having your long-term portfolio hurt, you can buy some high-yield risky assets. No short-term opportunities, however attractive they look, worth of changing long-term plans.
4. Don’t give a room for emotions
Whatever the market’s sentiment, you should trust only real data and long-term forecasts. You should never allow your emotions, whether it’s an excitement or fear of loss, make you overwhelmed. Your rulers are reasoning and calculations, rather than impulses and sudden decisions.
The most successful investors say, that if something looks too good – it’s highly likely a game of large investment corporations with the purpose to trigger massive sells or purchases or certain securities.
If you will follow your emotions like the 99% of market players, you’ll inevitably get a very costly lesson.
5. Revise and get rid of “dead” assets with no remorse
You should revise your investment portfolio at least once a year or every time after a significant economic or political shifts. This will allow you to get rid of unsuccessful or zero potential assets in order to redistribute money among new vehicles.
6. Choose brilliant vehicles at fair price over fair shares
The number one rule of billionaires who made their wealth on investments is: don’t hunt for a price, hunt for excellent vehicles (shares mainly). Even if something mediocre (in terms of commercial potential) is offered at a very attractive price, you should not buy it, as it will inevitably go down sooner or later. Instead of this – look for really worthy stocks, and buy most brilliant ones, whatever the price.
7. Make discipline and patience your best friend
Unlike in short-term investing, where a timely made unplanned decision can bring you some profit, long-term investments are based on patience. You should buy and hold vehicles that bring you moderate but regular stream of income, plus their value must gradually and steadily increase year by year.
Best vehicles for long-term investing
Here are the most reliable long-term investment vehicles you can choose under whatever circumstances:
- Shares of the TOP companies: Apple, Amazon, Netflix and other companies that are #1 in their industries. Their shares are pricey, but they will bring you a guaranteed, steady growth.
- Shares of leading companies of the biotechnology industry. This is the future. Many of these companies that are highly demanded now will disappear in future due to the rapid world’s development. The major breakthroughs are expected to happen exactly in the biotechnological sphere, so the lion part of investments will flow there. By buying now shares of these companies you will create your wealthy future.
- Gold and other precious metals. Gold will stay liquid and highly demanded till the end of times. It does not matter what types of vehicles create the main part of your portfolio, but you should always include gold as this your guarantee and funds protection in a case everything will go wrong. Gold will save your money under any circumstances (even during a global economic crisis, when the rest of financial instruments go down).
- Treasury bonds are semi-annually paid bonds (by the government). Treasury bonds will not bring high income but these are one of the most reliable securities for long-term investing.