Principles of Long Term Investment Success (2024)

FAQs

Which strategy is best for long term investment? ›

They are: (1) Use specialist products; (2) Diversify manager research risk; (3) Diversify investment styles; and, (4) Rebalance to asset mix policy. All boringly straightforward and logical.

Know Your Time Horizon

Everyone has different investing goals: retirement, paying for your children's college education, building up a home down payment. No matter what the goal, the key to all long-term investing is understanding your time horizon, or how many years before you need the money.

Possibly the greatest of these risks is that a portfolio with too much cash won't earn enough over the long term to stay ahead of inflation and that it won't provide enough protection against inevitable downturns in stock markets.

"Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."- Warren Buffet.

The rule states that stocks, bonds, and cash yield average annual returns of approximately 10%, 5%, and 3%, respectively.

Amount: Aim to save at least 15% of pre-tax income each year toward retirement. Account: Take advantage of 401(k)s, 403(b)s, HSAs, and IRAs for tax-deferred or tax-free growth potential. Asset mix: Investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

How to invest consistently? ›

Popular investment philosophies include value investing, focusing on shares that the investor believes are fundamentally underpriced; growth investing, which targets companies that are in a growth or expansion phase; and investing in securities that provide a return in interest income.

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.

One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

The Cardinal Rule of Investing Is To Diversify.

There are no hard-and-fast rules for the level at which stops should be placed; it totally depends on your individual investing style. An active trader might use a 5% level, while a long-term investor might choose 15% or more.