5 Principles For Long Term Investing


Besides patience, disciple, persistence and time, the key to successful investing isn’t predicting the future, but more geared towards learning from the past and understanding the present in order to make informed investment decisions.  Below are 5 useful strategies for long term investing for your future.

  • Investing for the future. 

Thanks to advances in modern healthcare and healthier lifestyles, people are living longer lives.  For a male who is 65 today, the probability of him reaching 80 is 66% and 90 years old at 23%, whilst the figure for a woman is 76% and 35% respectively.  Moreover, there is a 50% chance that at least one half of a 65 year old couple will live beyond 90.

  • Cash is not king

Many investors think of cash as a safe haven in volatile times.  However, cash left on the sidelines earns very little over the long run. Investors who have parked their cash in the bank have missed out on the impressive performance that would have come with staying invested over the long term.  In addition, the ongoing era of ultra-low interest rates has depressed the return available on cash to near zero, leaving cash savings vulnerable to inflation over time. With interest rates expected to remain low, investors should be sure an allocation to cash does not undermine their long-term investment objectives.

  • The power of compounding

Compound interest has been called the eighth wonder of the world, so start early and invest regularly!    The power of compounding  is so great that even missing out on a few years of saving and growth can make an enormous difference to your eventual returns. Starting to save at the age of 25 and investing £5,000 per year in an investment (at 5% a year) would leave you with nearly £300,000 more by the age of 65 than if you started at 35, even though overall you would only have invested an extra £50,000.  You can make even better use of the magic of compounding if you reinvest the income from your investments to boost your portfolio value further. The difference between reinvesting-and not reinvesting-the income from your investments over the long term can be enormous.

  • Take advantage of volatility

Volatility in financial markets is normal and investors should be prepared for the ups and downs of investing, rather than reacting emotionally when the going gets tough. In the words of Warren Buffet, ‘Be greedy when others are fearful, and be fearful when the markets are greedy’.  The lesson here is not to panic as more often than not a stock market pullback is an opportunity, not a reason to sell.

  • Stay invested

Pullbacks are very hard to predict therefore, market timing can be a very dangerous habit.  Even missing a handful of days in the market can have a detrimental effect on an investor’s total returns.  However, investors are much less likely to suffer losses over longer periods.  Thus, investors should keep a long term perspective.

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What investing principles do you abide by?  Let us know in the comments below!