6 Tips to Achieve Long-Term Investment Success

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Smart Asset
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Gator Financial Partners

The key to achieving long-term investment success will require you to develop a strategic investment plan that focuses on your specific financial goals, risk tolerance and time horizon. Here is a roundup of six common investing tips that can help you turn that goal into a reality. For hands-on help, a financial advisor can help you develop a personalized investment plan.

1. Invest as Early as You Can

When you start investing early, you allow a longer period for your investments to grow. And this will give your investments more time to earn compound interest. An individual who starts investing at the age of 25, with a goal of saving $1 million by retirement, would need to save approximately $405 per month, assuming a 7% annual return. Comparatively, if you were to begin at age 35, the required monthly savings would nearly double to $820 to achieve the same financial goal. You should note that both of these estimates are based on a target retirement age of 65, and could change based on the age that you plan to retire.

2. Identify Your Long-Term Goals

Identifying long-term goals can help you clarify what you aim to accomplish financially. These can include saving for retirement, buying a home, or funding a child’s education. And in doing so, you will be able to develop a specific investment strategy for those objectives.

To set long-term goals, you will need break down your aspirations into specific, measurable objectives that align with your values and priorities. Additionally, you will have to assess your current financial situation, including income, expenses, assets and liabilities, to understand where you stand and what steps are necessary to achieve those goals. Finally, don’t forget to review and adjust your goals regularly as your circumstances can change and new opportunities may arise.

3. Understand Different Types of Investments

Buying different types of investments can help you create a robust financial plan. This approach aims to mitigate risk and lead to more stable returns over time. For example, diversifying your portfolio with bonds or real estate could help you ride out periods of market downturn that adversely affect stock investments.

Since different types of investments carry different levels of risk, you should factor this into your investment strategy. If you have a high-risk tolerance and a lengthy time horizon, for example, you might create a portfolio that is heavily weighted towards stocks and alternative investments. But, if you’re approaching retirement, you may opt for a more conservative strategy that includes money market funds, certificates of deposit (CDs) and real estate investment trusts (REITs), among other assets, to generate income and stability.

4. Find the Right Portfolio Diversification

Diversification involves spreading investments across a variety of asset classes, sectors and geographical regions to mitigate the risk of substantial losses. The idea behind diversification is that different assets perform differently under various economic conditions. So, if one asset class underperforms, another may outperform, thereby balancing the overall performance of your portfolio.

Traditional asset allocation models, such as the 60/40 equity-to-bond ratio, serve as a starting point for diversification. But investors should base their specific allocation on their risk tolerance and investment horizon.

International diversification is another strategy that allows investors to spread their investments across different economies. This can provide a buffer against domestic market downturns, although it’s important to acknowledge that international markets can also experience downturns that affect diversified portfolios.

5. Learn as You Go

Since the market is always changing, continuous education is key to developing your strategy, learning new financial instruments, keeping up with market trends and adjusting for economic shifts.

To stay informed and educated about investment strategies and market trends, you can take quizzes, attend webinars or consult financial advisors. Investment platforms can also provide educational tools that can be invaluable in keeping up-to-date. Additionally, market indicators or signs could indicate when a strategy adjustment is needed. And, if you prefer self-study, reliable information can be found through reputable financial news sources, investment books and scholarly articles.

6. Max Out Retirement Accounts Each Year

The path toward your dream retirement can begin with a simple step: Maximizing contributions to retirement accounts. Both 401(k)s and IRAs offer tax advantages that allow investments to grow tax-deferred or tax-free, depending on the account type. And by maximizing contributions, you can take full advantage of these tax benefits, thereby increasing your overall returns over time. Additionally, your 401(k) could offer employer matching contributions and other incentives, which effectively provide free money that can significantly boost long-term investment returns.

Bottom Line

Your long-term investment success will depend on how you develop a strategic investment plan. By investing early, identifying long-term goals, understanding different types of investments, diversifying your portfolio, continuously learning and maximizing contributions to retirement accounts, you can establish a foundation for financial security and prosperity.

Tips for Investing

  • A financial advisor can help you create a long-term investment plan for your goals and needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • You can also utilize an asset allocation calculator to help better understand your risk profile and what investments might be right for your portfolio.

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