With more time on your hands these days, day-trading seems like the sure-fire way of making it big in the stock market. Those kids on Wall Street Bets made a fortune – and then lost that fortune – by pouring everything they had into GameStop, AMC, and Nokia. There must be something to it, right?
Unfortunately, day-trading is more likely to lose you money than if you were to park that same amount of money into a passive index investment fund and never touch it for one, five, or ten years.
Research has found that long-term investing such as liability insurance coverage is more of a certainty of allowing your money to work for you and generate a steady income. The trouble? Knowing what to invest in that will set you on the best path for long term growth.
To help you out, we’ve compiled the top seven tips for successful long-term investing growth for the 2021 investor:
1. Index Funds
If you are interested in day-trading, index funds are likely not for you. However, if you wish to accumulate a successful portfolio that generates regular dividends and steady growth, index funds are most certainly worth considering.
First, what is index fund investing? This portfolio of stocks mirrors a financial market index’s composition and performance, such as the S&P 500 or the Nasdaq Composite Index. The benefit of an index fund is that expenses and fees are much lower than a managed fund. The other advantage is that you can remain saddled on the New York Stock Exchange without being glued to CNBC or Bloomberg.
Studies have routinely found that investing in an index fund will yield far better returns than an investor – institutional or armchair – who ventures in and out of individual stocks.
Unsure where to begin? Here are some of the most popular index funds around today:
- Vanguard S&P 500 ETF (VOO)
- SPDR S&P 500 ETF Trust (SPY)
- iShares Core S&P 500 ETF (IVV)
- Fidelity ZERO Large Cap Index (FNILX)
- Schwab S&P 500 Index Fund (SWPPX)
2. Dividend Stocks
In today’s economy, interest rates are at historical lows. This means that you will receive a pittance on your cash deposits at the local financial institution, no matter how much you have saved.
The solution is to invest in dividend-paying stocks. These are companies that pay out a portion of their profits every month or quarter to shareholders. The dividends can vary, but some businesses have successfully maintained a steady dividend for years, and better yet, many have even increased their dividends during the boom-and-bust phases of the business cycle.
There are thousands of dividend stocks in the U.S. alone, so what would be some good stocks to start with?
- JPMorgan Chase (JPM): 2.3%
- Nutrien (NTR): 3.07%
- Exxon (XOM): 6.32%
- Walmart (WMT): 1.62%
- Restaurant Brands International (QSR): 3.01%
Real estate investing is perhaps one of the best long-term investment strategies today. The most significant barrier to entry is the initial capital you need to purchase a property. But there is still a way to invest in real estate – commercial and residential – without having to dump your life savings into a house with the possibility of flipping it and receiving a 30 percent return.
The solution? REITs.
A real estate investment trust (REIT) is a business that owns, operates, manages, and finances income-producing properties, offering a steady income for shareholders. Many REITs pay a handsome monthly or quarterly premium that can allow you to enjoy low-risk income without the pains, tears, and headaches associated with physical ownership of a property.
In the U.S., there are hundreds of REITs to choose from, so here are a few to help you get started:
- American Tower (AMT): 2.2%
- Americold (COLD): 2.4%
- CubeSmart (CUBE): 4.0%
- STAG Industrial (STAG): 4.8%
- Realty Income (O): 4.9%
4. Bond Funds
Will bond funds turn you into an overnight millionaire? No. Can bond funds offer assurance and long-term gains? Absolutely.
A bond fund is either a mutual fund or exchange-traded fund (ETF) that contains multiple bonds, including government and corporate, of various lengths.
As evident in the U.S. Treasury market of late, bonds can fluctuate, but the long-term trend is far more stable. So, if you wish for something more dependable in your portfolio, a bond fund is worth considering adding to your investment journey.
5. Never Chase Momentum Stocks
Unfortunately, no matter how seasoned and determined you are as an investor, there is always some new and shiny product to distract you from your strategy. The result? A disaster.
In recent weeks, the financial markets have been captivated by the meteoric ascent and the inevitable collapse in multiple stocks, from GameStop to AMC to Sundial to Nokia. They reached incredible heights in a short period, but then these stocks were bombarded with new investors who bought in near the top…leading to a collapse of epic proportions.
If you got in at the bottom of these so-called meme stocks, like GameStop at $8 or AMC at $2, and held, you made a killing. However, if you purchased a stake in $GME at $350 or AMC at $18, you saw your investment get erased.
The moral of the story is never to become infatuated with momentum plays. Ultimately, it safer (and smarter) to stick to your long-term strategy. Stray from this path, and you’re likely to get burned, as so many retail traders did in February.
6. Choose a Strategy — and Stay with It
What is your investment strategy?
Everyone should establish a blueprint of how you will buy and sell stocks. This will keep you in line and allow you to have a vision of what you will do in the stock market. But if you are new to investing, where do you even begin when devising a plan?
Here are some tips to think about when choosing investments and establishing your long-term investment game-plan:
- What are your short-term needs and long-term goals?
- Be sure to diversify your portfolio; don’t pour your capital into a single sector.
- Monitor fees and charges when buying ETFs or mutual funds.
- Choose the right account, such as an all-in-one checking and investment account or a free mobile trading platform.
- Will you be an active or a passive trader? Often – and this might be counterintuitive – being too hands-on can hurt you in the end.
- Only invest what you can afford to lose, should the market be turned upside down.
7. DCA to the Moon
The most effective investment strategy is to embrace dollar-cost averaging (DCA). This consists of periodically buying shares in a company, regardless of the price. By adopting this tactic, you can avoid volatility in a stock and potentially benefit from a double-digit spike.
By now, you might realize why long-term investing is the way to go. You may get spooked when there is a significant market meltdown, or you could experience FOMO when you see your friends win it big on a stock pick in only a few trading sessions. But these events should not dissuade you. It may not deliver the same adrenaline highs, but your long-term investment strategy will be a successful and money-making one.