7 Smart Ways for Long-Term Investing

Published On: 26-Jan-2021

When it comes to investing, it is advisable to stay aligned with the long-term investment plans. Investors must remember the often-quoted advice, “long term investing is often boring. If you are finding it adventurous, you may not be doing it right.” Here are seven smart tips for long-term investing:

1. Aligning Investments with Financial Goals

One should align their investments with financial goals. Financial goals also tend to define the investment horizon, which assumes the importance of selecting the mutual fund scheme best suited for the financial plans. Further, linking specific investments with financial goals also provides intrinsic motivation to the investors to continue investing and allows them to stay focused on their investment journey.

2. Starting to Invest at an early age

it is more critical to allow their investments more time in the market. It is better to start investing in mutual funds early. One must remember that time is an essential asset in the wealth creation journey, and one cannot recall the lost time. Experts say, “It's about time in the markets, not timing the markets”.

When one starts their investment journey at an early stage, the power of compounding can be harnessed in a better manner. For example, if one starts to invest at the age of 30 and invests Rs. 20,000 per month, the investment portfolio can grow to Rs. 4.56 crores at the retirement age of 60 (assuming the investments generate 10% annualised returns). However, if the investor had started the investment journey five years earlier at 25, the investment corpus would have swollen to Rs. 7.66 crores at the age of 60, keeping all other assumptions the same.

3. Invest Regularly

Martin Luther King Jr. once said, “if you can’t fly, then run. If you can’t run, then walk. If you can’t walk, then crawl.” This quote rightly encapsulates the importance of investing regularly and continuing to move ahead in the investment journey.

Mutual funds provide a convenient option for the investors to invest regularly through Systematic Investment Plans (SIPs). One can register a SIP with mutual funds for an amount as low as Rs. 100, (Please refer to Scheme Information Document (SID) for respective schemes) wherein the amount is deducted automatically from the bank account and invested in the specified mutual fund scheme. Regular and consistent investing allows investors to accumulate healthy amounts over the long term.

4. Asset Allocation

One must maintain an optimal asset allocation within their investment portfolio. While equities can be volatile over the short-term, they also equip the investors with the potential of long-term wealth creation. In contrast, debt investing aims at capital preservation and or income generation. It thus assumes importance for the investors that the investors must balance their investment portfolio with their risk profile and return expectations.

5. Maintain Financial Cushion

It is advisable to have an emergency fund corpus to stay prepared for financial contingencies in the future. Such an emergency fund should be preferably maintained for at least six months’ expenses. The importance of having such a financial cushion was tested and vouched during the recent Covid-19 outbreak, wherein the reduced economic activity severely disrupted the income flows for several people.

Many investors resorted to their emergency fund corpus to tide through the challenging times and continue their lifestyle expenses and monthly SIP and EMI commitments. One can maintain such emergency funds in liquid funds and overnight funds to maintain liquidity and the potential of better returns than savings bank accounts.

6. Ignore Market Noise

One should ignore the market noise and stay focused on long-term financial goals. The historical performance of equity markets also vouches for their long-term wealth creation potential, as equity markets have handsomely rewarded the investors who have continued to stay invested with them across market movements. If one had invested Rs. 1 lakh in 1978, the investment would have grown to Rs. 4.07 crores over 42 years as of 25 th October 2020, generating 15.4% annualized returns. source – www.BSEIndia.com

7. Periodic Portfolio Review

One should monitor their investment portfolio periodically, as it is crucial to identify underperforming investments well in time and replace such schemes with better performing schemes. Such periodic review also allows the investors to measure their goal achievement objectively and review their financial plans for any changes in the risk profile, financial goals, and financial assumptions.

With the above seven smart tips, the investors can have a pleasant investment experience in the long-term wealth creation journey.


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