Top Ten Tips For Long Term Investors

Long-term investors wishing for capital gains have to follow a few principles and learn the 10 great tips for long-term investment to safeguarded against heavy losses.

10 Great Tips For Long Term Investors

Decide your investment strategy and stick to it:

You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits. However in certain cases when you realize a certain sector is doing badly, you may have to revise your investment strategy.

Conduct your own research on stocks:

It is not advisable to just depend on hear say and decisions of your neighbor, friend, or relative and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

Learn to overlook short term fluctuations:

A long-term investor like you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has got nothing to do with this financial goal.

Resist investing in penny stocks:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs.5 a unit or Rs100 a unit you will lose all your money in case of losses. However a company with higher net asset value stock would prove less risk considering the regulations put on it.

Discard the losers and pamper the winners:

There is a tendency for long-term investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that big value stock could appreciate further and you could become a high net value person and small value stocks could fall further and you could make losses. It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

Never emphasize overly the price earnings (PE) ratio:

Investors have a tendency to place excess importance on the price earnings ratio. However this could be misleading, and it is better to take other ratios and analytical processes to decide on long-term investments.

Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies, however it is wrong to overlook the point that small start-up companies would make losses. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation.

Base your investment strategy on the future:

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. You would have poor long-term capital appreciation. However minimizing taxes and maximizing returns after taxation would help.

Adopt a long-term perspective:

Adopting a long term prospective is advisable for a long-term investor. Only stock traders with time, financial resources and specialized skills like education and expertise could benefit from volatility of the stock market.

Which of these tips do you think are absolutely critical to succeed as a long term investor? Do you think there are more tips a long-term investor should follow, do share with us.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners, a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Website: www.holisticinvestment.in