Each of us has some future goals, and to fulfil those goals, we emphasise creating wealth. For wealth creation, you need to make, save and invest money. Many of us succeed in making and saving money but lack the guidance to invest in a way that can help us build wealth over time. Explore this article if you are looking for long-term investment strategies to create wealth.
What Is Long-Term Investment?
Long-term investment means acquiring an asset or investing in it for more than a year, generally for five or more years, with the aim of wealth creation. Some investors prefer long-term investment in the stock market. In addition to stocks, you can make long-term investments in other assets such as real estate, gold and bonds, etc.
5 Long-Term Investing Strategies To Build Wealth
Here are five crucial long-term investing strategies that can help you to create wealth.
- Set investment objectives and stick to it
Walking on the road without knowing where you want to reach would have you wandering meaninglessly. Therefore, you need to decide your destination first. Similarly, when investing, it is better you determine your wealth goal first. Then, set your investable amount and figure out your risk appetite, annual return expectations and time horizon for which you can stay invested.
Once you set these investment goals, make every investment decision sticking to it. It would be best not to get distracted by small fluctuations in your portfolio as they often get corrected over time.
- Start early, and stay invested for the long term
Let’s understand it by the example of three friends, Riya, Charmi and Freny, who invested the same amount with the same expected annual return at the same time.
|Investment year||January 2007||January 2007||January 2007|
|Expected annual return||10%||10%||10%|
|Investment duration||20 years||15 years||5 years|
|Investment amount at the end of the duration||₹6,72,750||₹4,17,725||₹1,61,051|
You can see the difference. This is the power of staying invested. The stock market does not guarantee fixed returns, but it does not change the fact that the earlier you start and the longer you stay, the more potential the investment has for growing. Instead of trying to time the market, look for long-term investment opportunities.
- Have a well-diversified portfolio
An old yet effective adage states that don’t put all your eggs in one basket because you will be left with nothing if you lose that basket. Instead, if you put eggs in different baskets and lose one basket, you will lose some eggs while still having other eggs in other baskets. It also applies to your investments, and let’s understand it by the example of two friends.
Vidhi invested ₹1,00,000 in two top companies from the FMCG sector that historically gave good returns, which means the success or failure of her investment entirely depends on those two stocks.
Krisha invested ₹50,000 in stocks, ₹20,000 in bonds, ₹15,000 in gold and ₹15,000 in fixed deposits. Even in the stocks, she invested across various sectors, such as textiles, pharmaceuticals, FMCG, banks, financial services, etc.
If the stock market or FMCG sector falls, Vidhi has a higher chance of suffering from significant loss due to a lack of diversification. However, Krisha’s portfolio may suffer relatively less as she diversified funds across various asset classes and sectors.
- Review the portfolio periodically, and rebalance when required
You might have heard that buy good stocks and forget about them for at least ten years. However, that is not always a good practice for creating long-term wealth.
You may not check your portfolio performance daily, though reviewing it every month or quarter is necessary even if you have an investment horizon of ten or more years. Reviewing your portfolio can help you recognise problems before they get bigger.
For instance, if a stock you invested in after thorough research keeps losing its value for consecutive periods, it can be a red flag. You can sell that stock before it loses a majority of its value.
Additionally, you may need to rebalance your portfolio sometimes to get it in line with your investment objectives. Suppose you want large-cap stocks to be 20% of your portfolio, but due to stock market volatility, they become 15% of your portfolio. In such a case, you might want to rebalance it.
- Emphasise generating cash flow from investments
Having at least some assets in your portfolio that produce steady or growing cash flow is beneficial for wealth creation, and for that, a long-term dividend investing strategy can work. Dividend investing means investing in stocks that pay dividends, and if you reinvest the dividends, you can benefit from the power of compounding.
Other than stocks, you can invest in income-generating assets such as bonds, money market funds, real estate, etc.
Investment can be your path to financial independence,1 if done wisely with discipline and patience. While there are ways to become rich quickly, they involve huge risks. If you want to build wealth, you can follow the above-mentioned strategies. In addition, keep learning and make mindful investment decisions.
WealthDesk enables you to invest in combinations of equities and ETFs reflecting an idea, theme, or strategy. These combinations are called WealthBaskets, and SEBI registered professionals build them.
As the future is uncertain, no hack can assure whether you will reach your wealth goal in five years. However, you may follow the below-mentioned tips to build wealth over time.
• Try to create multiple sources of income, decide on a savings goal and stick to it.
• Turn some of your savings into investments. Determine the investable income, risk appetite, return expectations and time horizon and build a well-diversified portfolio suitable to your investment objective.
Every billionaire investor has different investment strategies. Usually, billionaires tend to have a well-diversified portfolio of asset classes such as equities, real estate, commodities, cryptocurrencies, etc.
Whatever the investment schemes or tips from someone state, no one can guarantee a stock that will surely make you rich. Therefore, instead of looking for a specific stock, it is better to come up with an investment strategy or subscribe to professionally managed WealthBaskets.
The idea of seeking quick wealth is extremely risky. Wealth creation takes time. To create wealth, you must make, save and invest money wisely.
Warren Buffet is said to use a value investing strategy for investing. Value investing means buying those stocks which seem to be trading at a lower price than their intrinsic value.