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The Basics Of Long-Term Investing

Jul 4, 2008
Short-term and long-term investing are, in the basic sense, the twin pillars of an investment portfolio. Short-term and long-term investing are two different but complementary strategies for making your money go to work for you and build more money so that you can live your dreams and have the things you want in life. The sooner you start to work on them in your life the better.

Short-term and long-term investing, as their names suggest, focus on two different ends. To do long-term investing right, you must map out plans for what you want to have accomplished, financially, over the very long haul of your life: 10 years, 20 years, 30 years, even 40 years into the future. Your life dreams, plans for your family, and career and post-career plans are some of the factors that play into making your long-term investing plans.

If you are making use of the advice of a financial professional, he/she can help guide you into what investment vehicles are right for achieving your personal goals in the long run.

One of the keys to long-term investing is what investors call "buy and hold" strategies. With the buy-and-hold technique, an investor picks investment vehicles such as the stocks of companies that he expects will be stable, profitable, but (typically) slowly growing companies over the next decades. The stock is bought and then allowed to just sit there in the investor's portfolio. If that stock has a bad week, a bad month, a bad year, a bad three years, the investor does not worry and does not sell the stock, because his focus is on how much profit he will have in the long term, not the short term.

Another important aspect of long-term investing is called the re-investment of dividends. In short-term investing plans, dividends are typically taken--meaning, the investor requests and receives a check for the amount of the dividend pay-out or takes payment of them in some other way so that they act as income. But with the re-investment of dividends, all of the money is immediately used to buy more stock--usually, more stock of the company that paid the dividend.

If the company is a good long-term choice, then it is expected to be worth more in 10 to 40 years than it is today, and therefore using dividends to buy more stock is a strategy for compounding long-term profits which will level out business fluctuation in the long run.
About the Author
David Brishen is a private investor who writes about investment fundamentals and strategies. Learn how you can make more out of your money at the author's website Top Investing Basics .
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