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Dos & Don’ts of Long term Investing for ...

Dos & Don’ts of Long term Investing for Wealth Creation

Mar 04, 2021

Post inspiration and adapted from Article by Andy Cross, Motley Fool US.

Key Takeaways

  • A soaring stock market has led to an increase in risky investing behavior.

  • While these risky strategies have worked in the short term, they may lead to very poor long-term performance — perhaps even painful losses.

  • It's time to reinforce the importance of avoiding the seven dangerous mistakes we see many investors making right now — and five tactics that smart investors can use to stack the odds of winning in their favour.

It's an incredible time to be an investor.

Stock markets across the globe have rebounded sharply since last spring and many are setting all-time highs. New trading platforms and zero-commission fees have made it easier than ever for investors to participate. And the share prices of many exciting, popular companies have soared, boosting investor expectations for future returns.

Let's remember, the stock market returns 10% per year on average.

And 1 out of every 3 years is a down year!

In big market runs like we've had, it’s not surprising that we’ve seen an increase in riskier types of investing behavior. A surge in short-dated call option contracts. Massive trading volume in low-priced, over-the-counter stocks. Intense interest in special-purpose acquisition companies (SPACs), speculative story stocks, and even bankrupt companies! And most recently (perhaps even more dangerously), speculative trading of ticker symbols based on nothing more than tweets and rumors.

Taking risks in these good times has paid off handsomely — so far. And they may continue to do so in the short term. But we think it's unlikely that such risky behavior will reward investors over the long run, and we fear it could have a devastating impact on their financial futures.

In GrowWealth, we love to see the rising enthusiasm for the markets, investing, and business.

You need long-term investments for you to amass greater wealth.

It has to be diversified.

It has to be about business performance.

And it has to be about making the world better.

That’s why we want to ensure you've seen this article, which details seven dangerous mistakes we see many investors making right now. Additionally, this report features five tactics that you can use to stack the odds of winning in your favour.

With risky investing behavior on the rise, I simply can't underscore enough how incredibly important this article is. That’s why I feel now is an opportune time to remind you of the principles that lead to long-term investing success.

Let's get straight to the point. I don't want to see any of our members making dangerous investing mistakes like these:

  1. Don't buy fewer than 10 stocks.

  2. Don't aim for short-term gains.

  3. Don't invest all your savings in stocks.

  4. Don't borrow money to buy stocks.

  5. Don't buy stocks because they're under $5.

  6. Don't expect all of your stocks to go up.

  7. Don't use options in your first year of investing.

Here's why and what we think investors like you should do instead.

How these investing traps can destroy your dreams

  1. If you focus on short-term prices, there's risk in overreacting to the noise and selling potential winners way too early -- sometimes at a loss! Don't invest in short-term stock prices. Invest in the long-term success of businesses.

  2. If you buy fewer than 15 stocks, you may not be diversified enough. A portfolio with just a few stocks could be extremely volatile. And investors like you risk missing out on potentially the biggest winners.

  3. Investing only in stocks could force investors to sell off investments at the worst possible time -- when the market is down! That's a terrible scenario.

  4. Borrowing money to invest in stocks puts investors in a very fragile position. Then they're at the whim of lenders who can force them to sell at massive losses. We've seen investors borrow money and accelerate gains in the short term, only to get wiped out entirely when the market declines. Bad idea!

  5. Don't let losing stocks scare you away from investing for the long term. Every investor has stocks that go down. Historically investors earn great returns if you're right just six or seven out of every 10 stock investments.

  6. Don't be inclined to buy penny stocks, no matter how exciting they seem. Stock market regulators have warned repeatedly that "penny stocks" trading at $5 per share or less can be extremely dangerous. These tiny companies are highly speculative and often end up worthless.

  7. Using options strategies before building a solid foundation of stock knowledge can put your entire portfolio at risk by focusing on short-term returns rather than long-term success.

What we think investors should do instead

1. Buy 15 or more great companies (GrowWealth members have access to exclusive stock analysis of great companies)

The more stocks you own and the longer you hold them, the more likely you will make money as an investor.

2. Plan to hold your stocks for 5 years or more

Lengthening an investor's holding period dramatically increases the likelihood of generating a profit. The shorter an investor's time horizon, the more we think it is like flipping a coin with your stocks. The longer investors hold, the less random their outcomes will be.

3. Add new savings to your portfolio regularly

Having cash available means being ready to invest without needing to sell another stock. And market declines become opportunities to buy at discounted prices!

4. Be prepared for stock market declines — and pounce on them

You have to expect 10% drops from the entire market about once a year on average, with 20% declines every four or five years. Even bigger crashes of 30% to 40% come at roughly 10-year intervals. We think investors have to stick with great companies through tough times to maximize your long-term returns. It's even better if they're able to add money to their winners along the way.

5. Target excellent returns over a 10- to 25-year period

Investing is a long-term game. And it's a game we're confident you can win; we're here to help.

We believe when investors buy at least 15 stocks and focus on holding those stocks for 5-10 years at least, they set themselves up for financial freedom and put the odds of winning in their favor. Let great companies succeed for investors like you. Try to make money by sitting.

You've got this!

Investing involves taking some risk, but investors can control most of those risks just by avoiding the dangerous mistakes too many investors make. Follow these Investing wisdom shared here, and we think investors like you will be on your way to financial success.

Happy Learning and Successful Investing👍

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Disclaimer: This material is intended for educational purposes only, and is not recommendations to buy or sell any financial instruments or products. Do your own due diligence and make your own decision. The value of your investments can rise as well as fall. Capital is at risk when investing in any financial products. You could get back less than you invested. Past performance may not be indicative of future results.

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