A flower takes its own time to bloom. A delicious Christmas cake needs the dry fruits soaked in rum for three months or longer. Winter comes only after the autumn season. The same is true with wealth. Wealth is acquired over time, and investing is known to be a key wealth-builder. Yes, there are day traders who buy and sell at the right moment and earn wealth. But, it is all a matter of the investor’s mindset.
Here, we explore building wealth by using long-term stock investment strategies. Research and Ranking, a SEBI-registered investment advisory, is your partner to help
you grow wealth by investing in long-term investment stocks with the right research tools and leveraging technology.
Long-term Stock Strategies to Build Wealth
The quest for wealth goes beyond mere investing. It is focused on developing a mind that questions and demands considerable discipline on the part of the investor. Here are some time-tested investment strategies to help investors looking to build wealth.
Know your purpose of investing – Before putting your money into any long-term investment instrument, understand your financial goals. Long-term investing is advisable when the goal is clear. Is it a house you are looking to purchase? Or an expensive car? Or are you looking to study overseas at one of the top-ranking universities? Or, is securing your life post-retirement your goal?
Once you have figured out what you are investing for, choose a mix of assets to help you reach your goal in the said timeline. For this, you may even timeline your goals as short, medium, and long-term. It will help you estimate the money required to achieve the goals. You can then prioritize your current finances as per the timeline of the goal or as per the most important goal on your ‘to-do’ list. This exercise will also motivate you to save and invest in your goals.
Start early – One of the simplest things to do is to start investing early. Not only is it easy to cultivate the habit of setting aside money to invest, but the investor also gains from the multiplier effect of compounding. When you start early, money gets the time to grow, helping you counter inflation. Starting early also enables you to take on more risk as the time horizon is longer. It helps to have an emergency fund and a financial buffer early on before attaining the age to achieve life’s important milestones.
Identify the product and strategy that can help build wealth – Another critical strategy is knowing which product will help you reach your goal. Some goals may require conservative strategy or investing in risk-averse products, such as fixed assets. Other strategies include taking on more risk and going for an aggressive approach, such as investing in equities or emerging-market stocks.
Invest in equities – Though considered risky, especially in the short run, equities or stocks of renowned, mature, or even some growth companies can be rewarding. Investing in equities by following a disciplined investing approach and staying invested is known to reward investors with good returns. One can also benefit from capital appreciation, dividend income, and the liquidity feature of stocks, which helps convert equities to cash.
Be consistent – Use the dollar-cost-averaging strategy to make purchases at regular intervals over a long period instead of making a bulk purchase at once. This method helps minimize exposure to volatility and risk. To be able to invest regularly, investors need to start with a budget. Doing this also helps track what you are spending money on and can prevent you from overspending.
Adjust your strategy whenever required – Markets and economies are continuously evolving. There will be new events and news coming in constantly that will cause your
portfolio to be disturbed at times. However, no strategy or principle is so solid that you can’t modify it. Avoid being overly fickle or stubborn. Strike the right balance between the two to ensure success in investing. It is good to question your investment strategies to help you understand if you have been doing it right or can use it to make it right going forward.
Avoid panicking on intraday volatility – The rule to gaining wealth through long-term investing is staying invested for the long term. The rule is to avoid being bothered by daily, weekly, or monthly variations in the stock markets. An investor should avoid falling for the short-term variations in the stock market and making impulsive changes to the portfolio. However, if there are extended periods of a market decline, dollar-cost averaging or rebalancing the portfolio may be helpful.
Invest in instruments with a lock-in period – Investors who may find it difficult to abstain from premature withdrawals should park their funds in instruments with a lock-in period. It will help achieve two goals. One, the invested corpus grows and also allows compounding to take effect.
Diversify – Diversification is, in fact, the unsaid rule of long-term investing to gain wealth. Wealth will grow only when risk is manageable or zero, which is highly unlikely. Diversify your holding across asset classes and within an asset class. For example, if you are considering equities, invest in small-cap, mid-cap, and large-cap stocks.
Diversifying a portfolio helps spread the risk, as different instruments and the segments they belong to react differently to market volatility. It helps provide stability while balancing risk and reward.
Be patient – One of the most important virtues to have in life and investing is patience. Being in the stock market is like being on a roller coaster. There are highs, lows, and gains, and losses; the best way to deal with this is by being patient. It is not a strategy per se, but reminding yourself that patient investing does allow one to make significant monetary gains is one of the rules of long-term investing to build wealth.
Like they say, ‘No pain, no gain’. It is also true in investing. Earning rewards from long-term investing involves being disciplined and patient. Building wealth through long-term stock investing is trying to achieve a delicate balance of time, patience, and strategizing. Some of the crucial rules of long-term investing are starting early, diversifying wisely, and embracing the power of compounding to reap a rich harvest of wealth. Building wealth with long-term investment strategies is also about making smart, calculated moves.