Successful Investing for the Long Term
Investing money usually means planning for the long term. So what must be kept in mind, and what investments are the most successful over the long term? Tips for a long-term investment strategy.
Unless you know your goals and needs, and align your investment strategy accordingly, you cannot invest with success. It's important to know how much risk you can take as an investor, and what your minimum term of investment will be. You must also consider your overall financial situation and the reasons for investing capital. Then you are ready to define the investment strategy.
What Investing for the Long Term Means
It is important to stick to your strategy – for the long term. It may be tempting to increase your equity portion when the stock markets are high, and take more risks in order to benefit. However, we can never know how long prices will rise. If the market drops, investors are suddenly confronted with huge losses that do not fit their personal investment strategy or risk tolerance.
Of course, the reverse is also true: Even when the markets are down, investors should stick to their strategy. If capital investments are sold off during difficult market phases, the result will be an actual loss in the portfolio. Double-digit price drops do occur most years. However, if investors stay calm it is very possible that prices will recover again. Experience shows that certain price fluctuations are normal, but over the long term, many investments can generate a return.
What Investments Are the Most Attractive for the Long Term?
The question about what financial investments are the most successful over the long term depends on the time horizon. The general rule is: The longer you can invest your capital, the more risk you can take. More risk can often mean higher returns, but of course higher risks can also mean losses. Specifically, bonds will have lower price fluctuations and lower returns than equities.
For this reason, private investors with a short time horizon of a few years should have a higher percentage of bonds in their portfolio, and keep equities low. However, those who can keep their money invested for more than eight years should aim for a higher equity portion.
Diversification Pays Off in the Long Term
However, it is also true that one asset class alone is not advisable. A long-term comparison shows that returns on a diversified portfolio are always better than for one asset class. This is why alongside bonds and equities, it is worth dedicating part of the portfolio to alternative investments. Structured products can also offer additional investment opportunities.
Admittedly, it is not easy to keep a well diversified portfolio for the long term. Even if a portfolio has the perfect balance in the beginning, the weighting will change over time due to different returns on the products. To adhere to the strategy, these fluctuations must be balanced out time and again by making changes to the portfolio. It is also important for long-term returns that yields on investments are reinvested. Compound interest can do amazing things over the long term.
Wealth Management Funds Include Diversification
This is why a wealth management fund can be a good solution. This is particularly true for private clients with a lower investment volume who do not wish to deal with their investments continually. These funds invest in various asset classes using a defined strategy. Fund managers actively adjust the weighting to the investment strategy. They also respond to developments in the financial markets by using a certain amount of flexibility in the portfolio composition.
Do Less, for the Long Term
Less experienced investors believe that the maximum return can be achieved with the right investments and perfect timing. However, studies show that investing steadily generally achieves the highest returns.
While it may be tempting to sell before prices drop too low and buy again when prices start to climb, the costs of this strategy may outweigh the benefit. Even if an investor resumes just a few days too late, this can have a major impact on the total return. What's more, every purchase or sale of a security carries a fee. Even if the fee is low in a particular case, over time fees can reduce your returns.
For the same reasons it is not worthwhile for long-term investors to get on board with short-term hypes. It makes much more sense to invest in long-term theme trends. Examples are fintech, infrastructure, and high tech. The Credit Suisse Research team continually analyzes market opportunities and shares its findings in numerous publications.