Understanding Long Term Investment Strategies For Beginners

long term investment strategies beginner investors time in market vs timing market

If you have been following the news in recent months, then you would have inevitably heard of Gamestop and its sudden meteoric rise in February. The sudden popularity of that event has caused a lot of people to gain interest in investing and many people are now trying to find long term investment strategies. There are quite a few to choose from and the right one is different from person to person. Picking the right strategy for you means finding one that will yield the best returns while occupying a risk threshold comfortable to you as an investor. 

Setting Investment Goals 

The first thing to think about when choosing a long term investment strategy is what are your goals for the investment. Is it to build wealth? Prepare for retirement? College Fund? Whatever the case may be, it’s important that you determine your goals and pick an investment strategy around it. 

If you are just starting and do not have clear investment goals, then you can’t go wrong with some of the popular index funds such as $SPY or $FNILX. These funds have very low expense ratios and offer investors access to a diversified portfolio of excellent companies. 

Realistic Expectations 

You may have recently heard about traders making thousands of dollars overnight, especially with Gamestop, AMC, etc on the news. One distinction that needs to be made is the difference between short term trading and long term investment. Traders will hold assets (and instruments) for short periods of time, buying and selling often to try and make profits off of the differences. This strategy is risky and requires a significant time commitment in researching specific stocks and commodities. 

Investing, on the other hand, is much more hands free. This approach is focused on building wealth over long periods of time and is not sensitive to short term shifts in the market. 

It may be tempting to follow in the footsteps of traders, but the reality is that their profits are not nearly as simple and easy as they make it sound. In fact, the overwhelming majority of traders actually end up losing money in the long run. Even with detailed and diligent analysis, inherent risks still exist and are the downfall of many aspiring traders. 

Time In The Market vs Timing The Market

That brings me to my last topic: “time in the market vs timing the market” 

You may have heard this phrase before, but it is largely predicated on the fact that the market always goes up. This may sound weird at first, but if you look at the historic data, it shows that, in the long run, the market will always rise. If you had invested $100 in the S&P 500 at the beginning of 1965, you would have just under $22,000 in 2021 (with the assumption that you reinvested all your dividends). Adjusted for inflation, that amount would be around $2,500 in 2021 dollars, so the adjusted return would be over 2,500%. 

These are the returns of a very passive and very long term investment strategy. You can build this large amount of wealth without necessarily the same approach, but nonetheless investing in the market early and holding it over time will eventually yield gains, regardless of booms, recessions, corrections, etc. 

Conclusions 

Although it can be daunting at first, investing is arguably one of the best decisions you can make in your lifetime. It gives you peace of mind, knowing that you are passively building wealth so that you and your family can have a better financial future. 

Jeffrey is a junior at New York University where he is majoring in Economics. He is working for Pearl Lemon Leads. He is interested in business, finance, and digital marketing. In his free time, he enjoys playing basketball and watching Formula 1 races.

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