Things to consider while investing for Long Term Investment
The stock market excites every type of investor. Some investors trade in the stock market for the short term and some investors invest in the long term. Investing in stocks is one of the best ways to get good returns. One may have heard about the greatest investors like Warren Buffet, who have made fortunes in stocks. But it is not a one-day trick, it requires a lot of patience to realize the fruits of their investment. The stock market is full of uncertainty but certain true and tried principles can help investors for long term success. Long term investments always net out most of the time.
Whether one is just starting or investing, you have been doing it for some time, this question has come to you at some point. Over time, every investor works out on their system and process. Every successful investor looks out for these basic steps:
- Look at fundamentals and the technical data of the stock. It will help to gauge the health of stocks,
- Smartly decide, which type of stocks one wants to buy.
- Know your entry and exit point, as well as why to maximize your profit.
Picking up stocks for the long term requires a lot of analysis and research over some time. To differentiate stocks that deliver over medium to long term, one must utilize a proper mix of subjective and quantitative elements, which may impact the investor returns in the long term. Here’s to choose stocks for the long term investment:
Long term investors always look for various financial ratios. One of the most important ratios which are given importance by investors is Price to earnings ratios. But sometimes investors give too much importance to a single metric. It is considered as best used in combination with some other metrics.
Keep accessing risk while investing in stocks:
While investing in the long term, one should first assess your personal risk. One should focus on creating a stock-picking strategy that is designed to preserve capital and control risk. Any investment important objective is to preserve capital. Afterward, select the stocks which perform your risk and return analysis.
Choose stocks based on your personality and age:
Long term investing involves the kind of personality an investor has as well as his age. For instance, if an investor is the mid 25’s will have quite an aggressive style of investing, as the risk appetite will be more. Whereas a guy mid-’40s will be investing in value stocks, as the risk appetite is medium. Similarly, a guy in the mid 45’s will mainly invest in large-cap stocks, as the returns will be more secure.
Advantage of investing in Long Term:
- Compound Interest: One of the major advantages of investing in the long term is the ability to make substantial gains over a long period. For the long-term investor, each year by continuing to re-invest the amount, you will increase the amount of interest, which you can receive in the following year.
- It reduces the impact of a market correction:
Long term investors have one of the benefits is that market volatility doesn’t affect their investment returns. As for a young investor, the first market drop will make him quite stressful. But if he/she remains invested during difficult times, there may be chances of making fortunes.
For example: – Everyone remembers Black Monday, the Dow Jones Industrial Average lost more than 22% of its value on October 19th, 1987. Short term investors left the boat, while those who didn’t panic and stay invested in large-cap gain approx. 31.7% in 1989.
*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing