Investment Makes You MultiMillionare

What is long-term investment?

Long term investment means holding different assets like mutual funds, securities, shares and stocks for more than a year. A year seems to be a long time, but it does not qualify to be called as a long-term investment.

Long term investments are mostly investments that go far in time for a span of 3, 5, or 10 years. We understand that the amount of time looks long to lock a certain sum of your money but it is worth it. You will be surprised how your money worked for you and made your present requirements look like a piece of cake. Yes, investments are supposed to be done wisely, as the returns will be able to solve a lot of future issues when you get them back.

 But why does it needs to be long term? Is there any reason for it? Or is it just a marketing hype to hoard your money. There is nothing like you think it is. When you invest in mutual funds or stocks the game is all about market risks. It is all connected to the market of your country. Therefore, you should know that the prices of these stocks and shares are sure to rise and fall, which experts call, volatility. It is unpredictable.

 When the prices are unstable, you see them fluctuating up and down. You feel your money is in the wrong place and you just get it out. But, if you closely see, the stock market today vs the stock market 5 years back, you will realize there was never a downward trend year-on-year. Therefore, when you invest in the market, you have to stay with the market for a long time to see your money growing.

Index Funds and ETFs

When it comes to money for other long-term goals, such as buying a house or starting a business, opening an investment account through a brokerage is the best way to put money aside. Within these accounts, index funds and exchange traded funds (ETFs) offer low fees and the best value.

Index funds are intended to keep pace with the overall market, but ETFs can be more variable. Both contain a collection of securities that can help spread risk, but investors should do plenty of research before sinking money into a particular fund.

Actively managed funds are another option for long-term investments. While they can come with higher fees, they also may outperform index funds and some ETFs. However, the increased gains also means they are more susceptible to market volatility.

One of the mistakes people make with these funds is losing sight of why they are investing the money, Lockyer says. "They focus on beating benchmarks instead of the goal," he explains. Like every other long-term investment, the promise of financial reward must be balanced with the risk of losing money before it is needed. Check with a financial planner to learn more about which funds are right for your goals and risk tolerance.

Match your investments to your goals

Know your goals, your time frame for achieving them, and how much risk you’re willing to take as an investor. Most investments fall into one of five asset classes that range from “conservative” to “risky.” Cash equivalents (including money market funds, U.S. Treasury bills and short-term certificates of deposit (CDs)) are on the more conservative end of the spectrum, while equities (stocks) are on the riskier end. Generally falling somewhere in the middle are guaranteed investments (fixed-rate products backed by the claims-paying ability of the issuer), fixed income investments (bonds and bond funds), and real estate. 

2. Spread your ‘eggs’ among multiple baskets

When you keep your savings in similar investments, you could put your money at too much risk or miss out on potential returns. Consider diversifying, or spreading your savings across several asset classes. In addition to investing across asset classes, you can diversify by investing in multiple subcategories within asset classes. Please note that there’s no guarantee that asset allocation reduces risk or increases returns.

3. Don’t try timing the market

Market timing is when you move your money in and out of equities to try and capture the performance highs and avoid the lows. It’s extremely risky, and even the most experienced investors get tripped up by it. If you sell your stocks during a down period, you may lose out on gains if prices go back up again. Keep in mind that historically, the stock market has recovered from broad slumps, although past performance is no guarantee of future results.

Dollar-cost averaging involves investing a set dollar amount at regular intervals, regardless of market swings.

4. Set up a purchase plan–and stick with it

Dollar-cost averaging involves investing a set dollar amount at regular intervals, regardless of market swings. Dollar-cost averaging is particularly useful in a long-term investment strategy. When you invest in something when its price is down, you get more units of the investment for your money, which can lower your average cost per unit. And the lower your cost to invest, the greater your potential return.

When you contribute regularly to a savings and investment account, like an account in your retirement savings plan at work, you're using dollar-cost averaging. Bear in mind that dollar-cost averaging can’t guarantee you a profit or protect you against the risk of loss. It involves continuous investment in securities regardless of fluctuating price levels of the securities. As an investor, consider your financial ability to continue participating in dollar-cost averaging during periods of low-price levels.

5. Keep tabs on your progress

At least once a year, take a fresh look at your portfolio. Over time, market swings can throw your asset allocation out of balance. When this happens, youcan move money between investments to keep your portfolio in line with the asset allocation you want.

It’s also important to rethink your asset allocation whenever your life changes–for example, if you get a raise, get married, have a baby or go through a divorce. You might end up deciding to take either less or more risk with your investments.

Whenever you check your asset allocation, make sure your portfolio remains diversified enough to maintain a risk level you’re comfortable with for both short- and long-term investing. While diversification helps reduce risk, there is no guarantee that it will protect against a loss of income.