Data is a testament to the fact that this ‘buy’ and ‘hold’ strategy works great with equities. Long-term investment strategies along with the above approach work with stocks, if you have a decade or two to play with. If not, market fluctuations including inflation, bear market and overall downturn may cause many to sell their stocks within the starting 2-5 years.
When you actually implement an effective buy and hold strategy with your stocks, then there may be times when you lose money in a fiscal year. However, in the long haul, this approach will surely give you around 10% on the initial investment per year. Here are a few simple rules to help you build a large stock portfolio over a long period.
1. Do your research
Before investing, seeking advice from various trustworthy sources is important. There is a multitude of comparison sites and other such resources available on the internet to help you analyze and understand investments. You can also seek help from an equity advisory company that offers customized research reports and help you navigate stocks for long term investment. Though past performance ensures no guarantee of future performance, it is advisable to choose a sector or a company that has been a strong performer over the last two years.
When putting your money in long term investment stocks, it is important to spread your risks. Invest in a number of stocks in distinct markets and make sure no one stock should be more than 10% of your total investment portfolio. This will give you the protection against a downfall in any one particular sector.
3. Hold onto well-performing stocks and sell those at loss
Monitoring your investments and comparing their performance against the market index from time-to-time is important. Instead of cashing your holdings that are doing well and taking home a profit, it’s better to cherish and retain them, if you are in this game for the long term. On the other hand, let your under performing stocks go. Though the temptation is to hold onto them in the hope they will increase your holdings. This is, however, a poor strategy! It is better to bear a small early loss than a large one later on.
4. Be contrarian
If you choose to go with long-term investment, a lot of people will lend you advice on the same, but it’s better to use sound judgment and not rely on the opinion of others. Buy stocks when the stock market is low and sell your worst performing stocks when the stock market is high. This approach will definitely help you get a decent profit in the long run.
5. Reinvest dividends
In most investment portfolios, a surprisingly large part of the overall growth comes from reinvested dividends and not really from the appreciation of the stock prices. Of course, a yield of 3% may appear small but makes a big difference in the long run. Choose some investments that have a solid history of dividends to provide stability to your portfolio.
6. Take the long view
When considering long-term investment stocks, avoid making frequent trades. Diversify your investment portfolio in a sensible way. Just don’t panic when market occasionally crash. These are just the buying opportunities for those who know how to take out profit from the risks.
Finally, sell your stocks when you eventually need the money. After all, you invested in the market to build financial security for you as well as your family.