Some of the key principles for accumulating wealth in the long run are diversification and strict adherence to a program. Consider the steps below to determine how to make major investments over the long term.
Steps
Step 1. Create an investment plan
Learn how to invest in stocks and bonds.
Step 2. Adhere strictly to your investment plan - if you change your investment plan, do so for the right reasons, such as a change in the long-term forecast for one of your investments or a finding that an investment is not. more consistent with your goals
Step 3. Put your money into different investments that have low correlation to each other
By spreading your money between a variety of investments that can go up and down at different times, you'll avoid taking those big "hits" that your entire portfolio could take when a class of stocks gets hit hard. You will also need to occasionally "rebalance" your holdings to ensure that the percentage of your portfolio of different stocks is still adequate for your risk appetite and time horizon.
Step 4. Reduce the amount of too large an investment - If you invest a large amount of money in a single stock, for example, you are taking substantial risk
Check the capital gains taxation for your income bracket. If it is low by historical standards, take advantage of the opportunity to liquidate your shares and invest the money in other asset classes, diversifying your portfolio: investing too much in a single investment is a risk that is not worthwhile. take.
Step 5. Continue Investing - Although past performance is not guaranteed, over the long term, equities perform significantly better than other class securities
So, keep investing in high quality stocks and don't be deterred by short-term fluctuations over time.
Step 6. Look for opportunities to increase your income
- To boost your investment income, consider buying stocks that have historically increased their dividend payout. And dividends can be even more attractive today, if you live in the United States, because they are taxed at a maximum rate of 15 percent. (keep in mind, however, that stocks do not provide a fixed income and may not even pay any dividends)
Step 7. Don't forget that an investment must aim for capital and income growth
- Many investors are attracted to the possibility of receiving high returns from stocks that quickly increase their value. But there is almost certainly room in your portfolio for good, solid investments that increase their value but also increase your current income.
Step 8. Limit risky investments - Be careful about investing in emerging markets, "junk" bonds, stocks of technology companies and commodities such as oil and gold
Before adding these volatile investments to your portfolio, do your homework and read every investment book you come across or consult a financial advisor if necessary.
Step 9. Adopt a tiered bond strategy
- Adopting a scalar strategy means buying bonds of different maturities, which can help you defend your investment in all different interest rate scenarios. When market rates are low, you will have your long-term high-rate securities working for you. Then, as rates rise, you can reinvest the proceeds of your short-term securities into new securities issued at a higher interest rate.
Step 10. Reinvest, Reinvest, Reinvest - If your investments generate dividends or interest that you don't need to cover your monthly expenses, consider reinvesting that income so you can take advantage of the power of compound interest
Step 11. Follow the principles, not the predictions - No one can predict what will happen in the financial markets in the years to come
So, adhere strictly to principles that never go out of style, such as diversification, investing in high-quality stocks, and maintaining a long-term perspective.
Advice
- Invest in those financial instruments that let you sleep at night.
- Remember that higher risk doesn't always mean higher payoff. It will generally mean greater volatility.
- Don't make "timed" investments. Over time, stock markets grow considerably. But most investors barely make a profit, because they keep going in and out of the market and miss out on the big long-term gains. The biggest gains tend to happen while you're not looking.
- Be careful of those you ask for advice. Everyone has an opinion, but not everyone who wants to advise you on how to invest your money is well informed.
- Develop a comprehensive plan with the help of a professional. It will be your best ally over time. And, if it's not, find one that is!
Warnings
- Investing is not a guaranteed business and carries some risk of losing the capital invested. Find investments that are of good quality and meet your goals and risk appetite.
- First you should make sure you have emergency funds, as well as short term needs funds (1 - 2 years) before you start making long term investments. You don't have to touch your long-term invested money until all other resources are exhausted.
