When it comes to investing, it is important to immediately make a distinction between an investment and day trading. The latter focuses on daily fluctuations and leveraging market changes. When it comes to investing, we are looking at a longer period. Typical investment horizons are 10, 20, and 30 years respectively. To invest over such a period, there are multiple strategies possible. In this article, we will describe five tips that will help you to be successful over a longer period.
Invest with money you can miss
This is a common pitfall for many investors that are planning to build their wealth. They start to invest a majority of their capital into the stock market. Fast forward five years later, and they desperately need the money for other purposes. Now, they need to sell their holdings, although they did not yet deliver upon their promises. The preferred investment horizon for these stocks, on the other hand, is 10 to 20 years. Therefore, make sure you do not need the money and invest what you can miss.
Track your portfolio on regular basis
After an investment is made, many people tend to check on the status of their investment on a daily basis. Although it is very understandable that you want to know exactly what happens with your investment, this can be a very time consuming activity. Especially if you focus on the long term, we recommend checking your portfolio at regular intervals. For example, you can set up an agenda item that reoccurs every month or quarter. Check-in on the progress: how are you doing? When you make use of a portfolio tracker, this becomes even easier. You can quickly get a hold of all your holdings through a single application.
What is a stock market tracker?
A stock market tracker allows you to connect with your broker accounts directly. They receive data on your holdings and provide a complete overview of your assets. This data is combined with stock market news and analysis. This can then function as your go-to place for information on your assets, including cryptocurrencies.
Focus on a small set of stocks and indexes and invest in them periodically. This approach allows you to average down your purchasing price, and correct it for market fluctuations. This approach is also known as Dollar-Cost-Averaging (DCA). To start with, aim for a broad index fund that covers a large part of the market (e.g., S&P 500) and invest in it every month.
Combine dividends with growth stocks
If you are building a strong index fund foundation, you can start exploring other options. A healthy balance between dividend and growth stocks is desired. With dividend stocks, we refer to companies that are established and pay a dividend every quarter and have done so for a considerable amount of time. This results in a guaranteed yield that you can expect over years.
Growth stocks are companies that are relatively young and have potential through their offerings (e.g., technology). You can research and select several of these companies and enjoy a strong appreciation of the stock’s value when the business goes well. Regularly check the progress of these stocks during your check-ins.
Avoid sentimental trades
It is very tempting to act upon major stock market changes. However, in general, it makes sense to sit it out. Continue to invest and look at the long-term horizon. A good way to do so is by looking at your returns over a longer period. This will make a dip look like something that will grow back.
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