If you wish to invest, you can choose a short-term speculation as in the casino and gamble to win or lose. If you want to make your wealth grow and really want to work towards a financial independence, you really need to learn the strategy of long term investment. If you want your investment to repay your Mortgage, you should opt for a thorough and relatively safe strategy with a good return, and that is long term investing.
What I really want to do: start saving or investing?
If you’re not out to make a separate pocket money for next year to buy a car; instead you want to work towards a long term goal of financial independence, you will have to slowly build up capital. A long term investment strategy will give higher average returns than short-term speculation.
Saving is basically a pretty safe strategy. When you choose a longer term savings, you know exactly what amount you will have in your hand on maturity. You know you have saved a certain amount which you will get back with an extra return (which is not too high). On the other hand Investing is the other name of uncertainty. But when you will look at the performance of long term investments for the past decades, you will notice that investment was more lucrative than so called ‘safer’ savings options. But it will not be fair to compare short-term-investment with savings. If savings can be compared it can only be compared with lng-term-investment as large time horizons makes even a risky investments safe.
How do I know that investing is something for me?
When you have some money in your hand that you are not going to need at least for the next one year then investing is certainly one option to be considered. Investing for a longer period like for 5, 10 or 20 years, generally provides much higher returns than safer savings. But you should keep in mind that in shorter time frame value of investment can fluctuate in the meantime. But one should not panic instead focus on long term goals.
Try this by asking yourself whether during the period of long term investment if the value of investment fall by 10% how you will react? A long term investor does not sell seeing short term variations. Long term investors trusts that the shares and mutual funds will rise again, because history have proved that every fall is followed by a bull phase. In fact long term investors invests more during worst financial crisis. You can ask yourself that how dependent you are on the returns on your investment? If you are dependent on returns to manage your day to day living then your risk taking capability is limited. But if you will opt for long term investing it will assure you of short term volatility.
Your investment capacity depends on the following criteria:
* What is your attitude to risk and market volatility in short term?
* How much time you can give your investment to grow? The higher the better
* How dependent you are one the final capital of your investment portfolio?
What you should know at least that the long-term savings usually does not the beat inflation. Returns on safe savings net of taxes cannot beat inflation. But while investing over the long term, and one that beat inflation very safely. Investing wisely for long term, usually gives two/ three times returns as savings. Looking at the past, the return for those who have chosen to invest with a long time horizon of say ten years to fifty years, the returns has always been positive. It is always smart to invest over a longer period to fully exploit the benefits of investing and also to neutralize the risks associated with investment.
What is a good strategy for long term investment?
When you have decided that you will invest for long term goals (5,10,15 or even 20 years) you should realize that in short term ( few months to couple of years) your investments can fluctuate and may drop in value. But you should not react in reflex and react in panic. Long term investment is for wise men, once they have invested they have basically noreason to worry.
Wise investing does not just say investing over a longer term but also diversification of investments. Make sure you have properly diversified your money by dividing into several investment options. Ensure that you are not only investing in shares but also in bonds, mutual funds and if possible in real estate. If you are interested to invest for long term than you can invest majorly in equity/ shares. Do not put all money in one company or in one sector. If possible spread equally in IT, Manufacturing, Finance, Banking, Auto etc sectors. This will spread the risk of your investments: When a particular share is doing bad the negative effect of this share by another share of different sector owned by you.
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