How To Start Long-Term Investing

6/29/2023

Investing is allocating resources, with the expectation of generating an income, profit, or gains. A long-term investment, however, is a state of buying and holding investments for an extended period. Long-term investors are often willing to accept more risk in exchange for the potential to earn higher relative returns over time. Long-term investing is a strategy that has multiple benefits, including cost savings, tax advantages and compounding interest. When you make the decision to invest in a long-term investment, you create routines and patterns, so that in the future, you’ll have the means to support yourself and achieve your financial goals.

Investors have historically experienced a much higher rate of success over the longer term, which is a result of having a plan and sticking to it. When you stay invested for the long-term, it gives your money a chance to compound and grow. A benefit of long-term investing is being able to watch the magic of compound interest. Compound interest accelerates the growth of your savings and investments over time. You can learn more about compound interest here.

Types of long-term investing

Before you start investing, it’s important to know what type of investment you’re looking for and, more importantly, how you’ll earn from these investments. Here are some types of investments that you can consider for the long-term:

Stocks

• A stock is an investment in a specific company. By purchasing a stock, an investor is essentially buying a small piece of the company’s earnings and assets. Issuing stock is one way that companies raise money for their business. Stock investors make money when the value of the stock they own goes up and they’ll be able to sell that stock for a profit. Stocks will also pay annual dividends which can be taken as income or reinvested back into the purchase of more stock. Investing in stocks can be attainable for everyone, even on a low budget. If you’re serious about stock investing, do your research first. You can learn more about investing in the stock market here. 

Bonds

• When investors buy bonds, they’re loaning money to the government or a company and earning interest in return. When you purchase a bond, you’re allowing the bond issuer to borrow your money and pay you back with interest. If you’re looking for an investment that’s less risky than stocks, bonds are for you. However, since they are less risky, they tend to offer lower returns. When interest rates fall, bond prices typically go up, and vice versa. That’s because bonds pay a fixed rate, so they’re more valuable when their rates are higher than those of newly issued bonds. Some types of bonds you can invest in are corporate bonds, municipal bonds, and treasury bonds.

Mutual funds

• If picking and choosing individual bonds and stocks seems unappealing to you, there is also the option of investing in mutual funds. A mutual fund is a managed portfolio of investments that investors can purchase shares in. These funds pool money from multiple investors and are managed by a professional fund manager to invest that pooled fund in stocks, bonds, and other assets. Having a diversified portfolio can help you spread out the risk. Your shares represent a part ownership of the fund, which in turn, gives you a proportional right to any income and capital gains generated from the investments.

Real Estate

• Real estate investments might involve purchasing investment property, such as a rental house, a fixer upper to flip, or investing in shares of a real estate investment trust (REIT). An REIT is a fund that invests primarily in commercial real estate. That can include office buildings, retail space, large apartment complexes, and similar properties. Both options have the potential for long-term growth and may even provide a passive income stream.

Retirement Accounts

• Retirement accounts are long-term investments that provide tax advantages, as well as penalties for withdrawing early. An example of this would be investing in a Roth IRA. This is an individual retirement account into which you put after-tax money. When you withdraw it in retirement, you don’t pay any taxes on the withdrawals. The Roth IRA is a great long-term investment, if a comfortable retirement is your goal.

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How to have successful long-term investments

Once you’ve made your long-term investments, you need to now focus on making those investments successful. Rather than panic over an investment’s short-term movements, it’s better to track its big-picture trajectory. Have confidence in an investment’s larger story, and don’t be swayed by short-term volatility. Once you’ve made your investment, sit back, and watch it grow over time.

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Checking each day how your investments are performing will only worry you and push you to potentially act irrationally. So, give your plan some space and be patient. Investing can be time consuming initially, and it can be hard to find enough time to build and manage your investment plan. Financial advisors can help track your investments and ensure your investments match your needs.

A lot of things can change over time, including your risk appetite, income, and goals. Hiring a financial advisor can ensure that these changes are incorporated into your plan. Start making long-term investments as early as you can. There’s not a certain age when you should start long-term investing, however you need to be in the right financial mindset. The benefits of long-term investing can truly be realized if you start early as it removes the burden of saving more money later in life. Smaller investments made consistently over a long time can be beneficial. It can help you balance out your needs, as you don’t need to divert a large portion of your income into investing.

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Investing for the long-term has been proved to be the most effective way to invest. It can be easier to follow and implement long-term strategies and has lower investment costs and taxes. Being consistent and starting early can help you reach your goals. Long-term investing is about patience and waiting out bad cycles. You must think about how an investment is likely to pay off down the road. Think about your financial situation before deciding which long-term investment is right for you. Watching your money increase and decrease may be stressful, but if you know that you’re in it for the long run, you’re more likely to come out on top.

 

 

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