If you’ve decided to get into investing, you have two options available: long-term investing and short-term investing. The former is undoubtedly the better option. Research shows that the investors who get in it for the long haul end up with much better results than the people who see it as a way to get rich quickly.
How can you become a smarter long-term investor? Follow these tips and you’ll be on the right track.
1. Err on the Side of Caution
When it comes to investing, a key element in success is minimizing risk. The top investors aren’t looking to hit home runs with their investments. They’re looking for investments that are likely to grow in value. These investments may not bring a huge return, but they will bring a consistent return, which is much more important.
The bulk of your portfolio should be in low-risk investments. If you want to try investing in something that’s more high-risk, high-reward, you can do so, just avoid committing more than a small portion of your money to it.
2. Check Out Index Funds and a 401(k)
We just mentioned low-risk investments, and two of the very best are index funds and a 401(k), both of which allow you to have a portfolio with a diverse range of stocks. If you’re starting out, it’s a good idea to look at these options first instead of trying to pick stocks on your own.
One of the things that’s great about a 401(k) is that if your employer offers one for you, then they may also match your contribution up to a certain amount. For example, your employer could offer to match you on up to 3 percent of your salary, meaning you’d contribute 3 percent and have a total of 6 percent going into the account. Free money is as good as it gets when you’re investing.
3. Keep Your Trading to a Minimum
Just like long-term investing tends to bring better results, the same is true of a low number of trades. It’s much harder to be successful if you’re daytrading or just trading stocks frequently, because each time you trade, you have commission fees to deal with. You don’t just need a profit; you need to profit more than you spent on those fees.
Look for investments that you can hang on to for months or preferably years. It’s also recommended that you never risk more than 2 percent of your account on a single trade. That goes back to managing risk. By risking 2 percent at most, you would need to make 50 bad trades in a row before you were wiped out.
4. Look into Lending
Everyone wants to know how to make money online, but there is one simple option that also doubles as excellent investment opportunity – peer-to-peer (P2P) lending. With a P2P loan, a group of investors finances the borrower’s loan, and then the interest on the loan is their return.
These can often bring you a solid return of 12 to 16 percent annually, which is better than you’ll get through many other types of investments. You will need to check out the borrowers and avoid those with high risk scores who are more likely to default. However, you can contribute a small amount to many different loans, which is an excellent way to diversify your lending portfolio.
Investing is one of the best things you can do for yourself to ensure your financial future. Because of how your earnings compound, if you follow a low-risk, long-term approach, you can turn small, consistent investments into a much larger amount over a period of decades. By the time retirement rolls around, you’ll have a substantial nest egg waiting for you. Start investing now, deposit more money into your investment accounts consistently and you’ll be happy with the results.