Unlike a short-term investment, thinking for the long term requires a thought out strategy that will last for many years.
Long-term investments do carry some of the risk of short-term moves, but patience will reward the right strategy.
Before establishing your strategy, think of your goal. Are you wanting to invest for retirement, a house or children’s education? By having a target in mind, you can then figure out your strategy and know if long-term investments are for you.
If you are ready for the long term, we look at three possible strategies you could use.
Strategy 1: growth investing
A well-thought-out growth strategy will see you invest in companies which are exhibiting signs of above-average growth and those that are displaying long-term potential. While some of the stocks may look expensive or over-priced in comparison to the business’ earnings, there could be a higher potential for life-changing returns if they are discovered early on in their life. Spotting the next big thing isn’t easy – but it’s a Holy Grail to search for as a trader.
If you’re considering a growth investment, companies with the following traits historically, have an increased chance in becoming the next big thing:
- If their market is large and there’s an opportunity to expand
- If the business has a competitive advantage in its sector
- If it already has financial stability and solid foundations to build from
- If it has a strong past price appreciation.
Strategy 2: value investing
You could try to follow in the footsteps of Benjamin Graham, who is regarded by many to be the father of value investing. This strategy will see you choose to invest in the less desirable shares – ones that appear undervalued according to analysis. In Graham’s book The Intelligent Investor – which has been picked by a new guide as one of the top trading books – he explores this strategy and his theory on the margin of safety, which looks at the likelihood of a future rise and then holding onto them for the long term.
Strategy 3: momentum investing
Momentum investing could sound too good to be true; buying what has increased in price with anticipation that it will continue its growth. It’s a strategy that allows you to capitalize on the continuance of an already existing trend. Having a mixed portfolio is recommended when trading so, if you’re usually in the short-term market, adding a bit of momentum investing could help boost long-term returns. Invest in the top 20% of stocks and then repeat this every three-six months with the current top gainers. Successful momentum investors are technical analysts as this strategy is a data-driven approach which looks for patterns to guide decisions.
Be sure to analyse risks and spend time thoroughly understanding your market so that you’re in a position to achieve your goals. Whether you’re interested in the volatile world of forex or assets such as gold or oil – do your research and build a strategy for success.