Five smart tips for long-term investors

Building a risk-adjusted portfolio requires long-term planning. It is equivalent to a test match in cricket. The asset allocation needs to be restructured from time to time to reap the benefits of high-returns with the increasing age. More than 90% of the investors spend their energies on market timing and stock selection and do not focus on asset allocation, which can align their financial goals. Hence, appropriate asset allocation is the need of the hour. Many financial advisers recommend 100 minus your age should be allocated towards equity and the remaining should be invested in the debt funds. However, this asset allocation might not be suitable for everyone. The ideal way is to chalk a financial plan and work towards it.

Here are the five intelligent tips for long-term wealth creation:

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the number of investment choices is almost overwhelming. Your decisions will be based on a variety of factors, most notably how soon you will need your money.
Long-Term (Above Three Years)

Individual Stocks: If you have a long investing time horizon, investing in shares of top-quality companies can help you generate substantial wealth. The key lies in finding companies with low or average valuations and consistent cash flows that indicate the potential for solid, steady growth.

Shares of large diversified companies can make great investments. For those who have a longer investment horizon, purchasing shares of smaller, more volatile companies can be quite profitable but can come with additional risk.

Equity Mutual Funds: Selecting and maintaining a portfolio of stocks might not be your cup of tea. In such cases, you can save yourself the trouble of selecting stocks and instead pick equity mutual funds designed to match your investment goals.

With the regulator’s new categorization norms, picking the right mutual fund for your investment goals is much easier. A well-managed fund can generate an average return of over 14 percent over the long term. Select funds that have a proven track record of performance, across market cycles.

Index Funds/Exchange-Trade Funds – Index Fund and ETFs invest in stocks in the same proportion as the underlying index. So a Nifty 50 Index Fund or ETF will aim to keep the weight of stocks inline with the Nifty 50 constituents. Thus, you get the wealth creation potential of equities at a lower cost. However, as the portfolio is passively managed, the returns may end up lower than actively managed equity funds. If you are not sure of the right actively managed mutual fund, you can invest through SIP in an Index Fund.