Longer term investments tend to be more stable investments – so what should you look for? We take a look below.
- Have Clear and Defined Financial Goals
Whenever you are looking to get into investing, you need to have a defined roadmap. You want to know the life goals you have so you can reverse engineer what your investing profile should look like. This gives you a clear set of variables that you can use to plug into the equation to figure out how much time you would need to achieve your financial goals. City of London Investment Trust advises that having defined goals and an accurate timeline will give you the exact amount you need to invest monthly to maximize your investment potential. You will be able to accurately dictate your fund flows to all of your short and long-term investments.
- Start As Early As Possible
One of the biggest advantages you can have with investing is starting early. Starting early is such an advantage because it enables you to leverage time. Time is something you cannot get back. You get to maximize the power of compounding with time. Because of the power of compounding, you can generate greater returns on your investment the longer the money is invested. This can yield a larger corpus over the long haul with lower contributions.
- Invest In Equity Funds
Equity continues to be the best asset class if you want to generate the most returns in a 5-year or longer period. While it can be volatile in the short term, you need to have a longer-term outlook. With a longer-term outlook, it’s outperformed fixed-income assets and even inflation by a significant amount.
The best way to minimize risk and maximize returns with equities over the long run is by investing in equity funds. These funds come with plenty of benefits including professional fund management, good diversification, and convenience. Best of all, you get all of it at a low cost. Anyone that has taxable income can even invest in ELSS funds which can help you save on income tax.
- SIP Mode
Not everyone has the knowledge, expertise, or skill to be as hands-on with their investments. If so, you could always go the SIP route for your equity fund investing. This is a good way to ensure you are making regular contributions and averaging your investments even during market corrections. This can give you the financial discipline that is required to be a successful investor. Best of all, you don’t need a lot of money. Thus, investors that don’t have a lot of monthly surpluses can end up getting the benefits of investing early through these mutual funds.
Anyone investing in SIPs should look to add to their investments during the steeper market corrections much like the one that occurred around March of this year. That way, you can cost average into the investment position and potentially lower your average to the point where the returns are much greater in a shorter period.
- Don’t Dip Into Your Emergency Fund
Whenever you are investing with a long-term mindset, you want to ensure you have an emergency fund that can be used in the event you need a runway. Try to ensure the fund is large enough to help you get through a minimum of 6 months of expenses. You want to include everything you need to live in these expenses including your living expenses, utility bills, children’s expenses, and more. International health insurance is essential when living abroad to avoid expensive healthcare costs. Not having an emergency fund in place is one of the easiest ways to force you to have to sell off your investments earlier than you would like. Not only is this an easy way to derail your investment progress, but it could force you to sell your investments at a complete loss if you find yourself needing money from your stocks during a significant market correction.