We’ve all heard countless stories of individuals who invested early and managed to receive returns that have tripled or even quadrupled. There is always a friend of a friend who caught onto stocks early on or purchased a home in an up-and-coming neighborhood before prices skyrocketed. If you are sick of hearing these stories yet eager to know how you can invest your money wisely, you are in the right place. We are happy to extend all of our best tips for successful long-term investment so that you can live out your dreams of financial freedom.
Long term investments entail holding onto stocks, bonds, property, or general assets for longer than a year. On the other hand, short term investments are any assets that you hold for a year or less, although these are typically held for several months if not weeks. Short-term traders tend to search for products that will be gaining value sometime in the immediate future and therefore they conduct more frequent trades.
Long term investments tend to form part of an overall strategy and will rarely be touched until enough profitability is reached. These investments tend to gain value slowly but predictably, therefore investors hold onto these until they deem fit to sell. Long-term investments include property, index mutual funds, and bonds, however, we will delve into these terms with more depth later on.
Another advantage is that long term investments require less of your time and efforts. This may sound contradictory, however, rather than watching stock prices fluctuate every day, you can rest assured that your investments will be growing whilst you defer your attention elsewhere. Long-term investments also have reduced fees or taxes as these are held onto for an extended period of time. You would not have to worry about as many transaction fees as you would with several short-term investments.
Now that we have covered what a long-term or short-term investment entails, we can now look at the different options available for long-term investments. The possibilities for investment are endless, however, for the purpose of this article, we will be focusing on real estate, index funds, and bonds. Investing in real estate is a great way to accumulate wealth because it always tends to increase in value over time, allowing you to sell it for a profit at a later date. However, it also has some serious drawbacks.
In order to purchase a property, you must first have a hefty amount in savings to either place down a deposit or get a mortgage. It will also take time to liquidate this asset, as you must wait around for a good offer to sell. You may benefit from a steady flow of income if you decide to rent your property out, but this also means becoming a landlord. You will be in charge of fixing up the property and liable for any possible accidents.
Given all of the hassle that is involved in investing in real estate, many investors choose to place their faith (and money) in bonds or index funds. Bonds are basically fixed-income investments that will pay out over a specific period of time. These are very low risk because you receive a fixed rate on your investments. However, some of the minimum bond purchases can reach up to $1,000, so make sure you save up before considering this route. Bonds are also less liquid in comparison to stocks or funds as fewer people are willing to purchase them.
Briefly speaking, index funds are ETFs or mutual funds that try to mirror the portfolio of a designated index and match its performance. These are a great way to invest money on a long-term basis with relatively low risk. These funds are considered low risk because they are highly diversified. They also boast of low fees and are very budget-friendly because they require little to no management. If you are looking to invest with the specific purpose of retiring, index funds could be a great option for you. For these reasons, many choose investing in index funds Canada over the prospect of investing in real estate or bonds.
One of the most important tips you can receive when trying to invest on a long-term basis is that you must learn to hold your nerve and keep calm. All markets will suffer from highs and lows, this is the whole point of investing. You risk a certain amount of capital in order to regain a significant profit. Don’t sell your assets the minute you think they are flailing. The same goes for the opposite, don’t sell your assets the minute they begin to accumulate value. Long term investments are all about the wait. If you want some valuable advice from one of the world’s most successful investors, take note, Warren Buffet advises that “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”.
Another way to ensure success when investing on a long-term basis is by diversifying your portfolio. If you place all of your investments into one market, property, or commodity, you could risk losing it all at once. If you have invested your money into an array of assets, you will be less likely to feel the burden of a financial crash or stock slide. This is why index funds are such a popular choice amongst investors, the fund itself is already highly diversified and therefore less susceptible to risk.
Nevertheless, the most important thing to remember when investing on a long-term basis is that you must be patient. Rome was not built in a day and you cannot expect to make hundreds or even thousands of dollars within 24 hours. One of the greatest advantages to long term investments is that you are more likely to create meaningful wealth whilst doing so, as these opportunities tend to be of a lower risk than short term investments. Believe in yourself and most importantly believe in your investments.