Updated: December 13, 2019
Investing is not a sprint but a marathon, especially in the stock market. That means when you buy shares of a company, then you should be prepared to let your money “sleep” for many years.
How many? As long as you can, but I always say at least five years.
Fortunately, long-term investing in the stock market is not hard to do because you basically just buy shares of a good company, hold on to it, and watch its value grow over the years.
But there are some things you should keep in mind if you want to make the most out of your long-term investment – below are five of them.
1. Research first before deciding which companies to buy.
Don’t take investing advice from only one source. Listen to what others are saying, then analyze the information and decide which one best suits your objectives.
Also, remember that it’s okay to be biased towards companies that you actually like, especially if it has shown consistent growth over many years and its fundamental outlook is good.
2. Diversify and you’ll sleep better at night.
Don’t put your eggs in one basket. This means you should learn to spread your risks by buying a number of stocks in different sectors.
Moreover, be sure to have UITFs, mutual funds and other instruments in your portfolio. Don’t just buy stocks.
3. Stay with the winners, trade the non-performers.
Even though you’re in it for the long-term, you should always take the time to monitor your stock investments. Personally, I check mine at least once every quarter.
The reason why I do this is because I want to see which stocks are performing at par or better than the index. And when I see a stock that’s under performing, I take note of them and trade it for better companies when the market goes up.
Of course, you should give them ample time to ride the market first, maybe around a couple of years, before deciding if you should hold or sell them.
4. Buy low, and sell high.
It’s common sense, but you’ll be surprised at how many people are doing the opposite – buying high and selling low. I can’t blame them, because emotions can sometimes really mess up one’s investing decisions.
For example, early this year, our stock market experienced record highs. People who ignored the stock market for years suddenly starts hearing news about it and decides to get into the action as well, not knowing that they’re “buying high”.
Meanwhile, the already invested saw that time as an opportunity to sell their under performing stocks (Tip #3 above).
When the market experienced a correction during the second half of the year, many saw the negative percent in their portfolio and their fears took over – so they decided to “sell low” and take the losses.
However, the smarter investors saw this as an opportunity to buy stocks, and they didn’t have to put out more cash for it – because they simply used the money they got from selling their under performing stocks early this year to buy the shares.
5. Reinvest the dividends whenever you can.
You’ll be surprised at how much money you’ll actually earn from dividends, especially if you’re investing regularly through cost averaging. If you don’t need the money yet, then reinvest it back into the stock market – buy a new company, or get more shares of your existing ones.
Always remember that you are a long-term investor – so minimize your trades.
Update yourself with the market sentiment, monitor your portfolio, but stay focused on your goal.
Don’t forget to diversify sensibly and consider other investments as well.
Lastly, don’t panic when markets occasionally crash (or “correct”). They’re all part of the experience. And believe me when I say that the longer you’re in the market, the less scary these ups and downs will get.
Photo credit: Ahmad Nawawi