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.

No doubt, the stock market is surrounded by uncertainties. Still, some tried and tested principles can boost the chances of long-term success for investors.

Here are five smart tips that can help you:-

  1. Pick a strategy and work on it
  2. Do not overemphasize the P/E ratio
  3. Keep a long-term perspective in mind
  4. Don’t chase a hot tip from market
  5. Sell a losing stock

You can learn about long term investing through online financial education provider like Elearnmarkets, Udemy, Wall Street Mojo, etc.

The stock market offers much more returns but because of the element called risk, many people avoid it. Here are some tips to make the most of your long term investment:

  1. Align your investment with clearly set financial goals:

Every long term investment that you make should have a specific goal associated with it. A clearly set goal with a set goal would let you to find out the monthly contribution required for creating corpus.

  1. Diversify your risks among different asset:

For a successful investor, it is suggested to diversify your risks by investing in a number of stocks in different markets in mutual funds, bonds and other financial securities. A thumb rule is that no one stock or other investment should be more than 10% of your total portfolio. Investing in different geographic areas such as US, Asia, Europe and other emerging markets. This should give you protection aganist a collapse in one particular sector.

  1. Do your research:

It is suggested to a bit of research before putting a single penny into the stock market. Invest in those companies who gave outstanding past performance for the past 5 years.

  1. Reinvest in dividends:

A large part of overall portfolio comes from reinvested dividends rather than appreciation of the stock prices. A yield of 3% or 5% may sound small but over the period of time, it makes a big difference. Go for the investment with a strong and positive history of dividends as they provide the stability for your investment.

  1. Review your investment at periodical intervals:

Regular monitoring of funds is as important as investment in equity funds. It has been notice that the funds with outstanding performances fail to give the best results for some period. Hence, ensure to compare the returns generated by using your existing funds over the past 1 year with the benchmark.

For better performance, redeem your existing funds if they have constantly underperform over the last 3 years.

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