Long Term Investment for Retirement | Long Term Investment Strategy

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There are many investment strategies you can use to invest your money. One of the best strategies is to invest your money for the long term.  A long term investment for retirement relies on receiving the average market return by investing at regular intervals for many years (10+, 20+, 30+, 40 + years).

long term investment for retirement | 5 tips to know

A realistic investor knows the market can drop and rise by large amounts at any time.  By having a long term investment for retirement, you can ride out the markets lows to receive the average return.  Too many people miss out on large returns because they only invest for the short term, and sell their investment too early!  Here are some tips on building a successful long term investment portfolio:

  1. Diversify – It’s extremely important to diversify your long term investment portfolio to reduce any risk one particular company may have.  When you buy stock in different companies, you lower your risk by spreading it out amongst the different companies.  If some stocks suffer while other ones grow, your investment will be protected because of this diversification.  You can diversify your portfolio by investing in companies in different industries, small or large companies, and domestic or foreign companies/funds.
  2. Asset Allocation – This ultimately determines what your portfolio return will be.  Asset allocation is the mix between stocks/bonds/cash in your portfolio. A person with an aggressive long-term portfolio will invest most of their money in stocks and less in bonds/cash to receive a higher return.  This is a good strategy for a young person just starting to invest or for someone with extra money to invest who is looking for higher returns. Less aggressive portfolios will invest more in bonds and cash in hopes of outpacing inflation with little risk of losing their initial investment.  This strategy is better for an older person who will need their money for retirement.
  3. Market Timing – Although it’s almost impossible to accurately time the market, there are a few thing to keep in mind: Don’t sell your stock just because the market is low!  You should actually do the opposite – think of the stocks as being on sale during a low period and buy more to make your average purchase price of the stock lower!  When the stocks go back up your return will be even higher than your original investment.  Also don’t always follow the latest buzz of a hot stock – The stock could be reaching its peaks and eventually revert back to the mean.  Do your research before investing.
  4. Cost/Fees – Invest in good companies and keep them.  The more you buy and sell the more fees you get charged.  Besides fees eating away at your returns, you are most likely missing out on returns by selling too early.  It’s also very important to buy a long term investment for retirement with low fund management costs – this is more relevant when buying mutual funds.
  5. Invest Money on a Regular Basis – Make a commitment to invest a small portion of your income on a monthly basis. Even a small long term investment can grow to be a very large amounts over time.  For an example of what investing $25/$100/$250 a month can turn into read – Why Should I Invest?.  Investing on a monthly basis takes the emotion out of investing- since you buy every month, the price will always be different.

Best Long Term Investment for Retirement

Investing in your employers 401K, if your job provides this as a benefit, will give you a safe and easy way to have a long term investment for retirement. Your 401K will also allow you to allocate where your money gets invested and you can even pick particular funds yourself!

If you’re lucky, your employer will match the amount of money you invest in your 401k up to a small percentage.  This is free money you get just for investing your own money!!!!  The recommended amount to invest in your 401K is 10%-15% of your current income.  My employer matches my 401k dollar for dollar up to 4%, this ends up being around $2,500 a year of additional money that gets reinvested in my 401k.  This money then sits and grows into huge amounts of money over time with the rest of my 401k!

What’s Your Long Term Investment Goal?

Having a long term investment strategy is a simple way for most people to invest their money. If you keep these principles in mind when you invest, you will set yourself up for financial freedom while reducing your risk and cost associated with investing.

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