Topic: Growth Stocks

Long-Term Investment Options: Choosing Wisely Limits Worry

If you choose long-term investment options that have a history of success, earnings, and dividends, you can avoid worrying about things you can’t control

Many investors spend a lot of time worrying about the wrong things. In particular, they worry about things that are unpredictable. Even if they happen, these things may have only an indirect impact on their long-term investment options. Still as a result of focusing on them, investors have less time to pay attention to things with a direct impact on the value of their investments.

For instance, at times they may mull over every tidbit of economic information that comes out, and how it differs from the news a week or a month earlier. They hope to detect a pattern—a sign that the economy is mending and headed for a return to steady growth, say, or conversely, that it is deteriorating and doomed to plunge into a new recession.

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Long-term investment options worth using don’t drain your energy on time-wasting patterns

Some investors look for patterns or omens in domestic or international politics, or in demographic data, or in the price of gold. This can eat up an awful lot of time.

These investors often feel they can cut their investment risk by selling some or all of their stocks in times of high risk, and buying them back when risk is low. This never works well for long. After all, risk as it is portrayed in the media, and genuine market risk, are two different things. No matter how you may try, it’s hard to pinpoint market turning points, if only because you have to outguess so many other smart people who are trying to do the same thing.

You’ll rarely if ever sell near the top, nor buy back near the bottom. If you could do that with any consistency, you’d “make all the money in the world,” as the saying goes.

If you constantly worry about the “big picture,” you may at times manage to sell at just the right moment to sidestep a serious downturn. But you may only do that after sitting through a series of downturns. The downturn you avoid may turn out to be the last in a series—the “final leg downward,” as short-term traders like to refer to it.

Top long-term investment options will recover more quickly from market downturns

Additionally, these options may also suffer in the shallower, shorter downturns that come along more often. But most recover quickly when the market revives, as it always does. In fact, stocks like these may lead to the inevitable market recovery.

The best long-term investment options all have one thing in common: They give you reason to believe they might be worth holding on to indefinitely.

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply, these stocks have a clear business plan that seems to be working.

Avoid value traps disguised as long-term investment options

Some of the measures that lead you into value traps are statistical. They include unusually high dividend yields, unusually low price-to-earnings (P/E) ratios, low stock price to book value ratios and other measures of per-share value.

Any of these measures can make it seem like a particular stock is a bargain. But in fact, any of them can simply be based on a low stock price that is the result of selling by well-informed investors who recognize a dismal long-term future.

Another way to fall into a value trap is to put too much faith in the value of a brand name. A strong brand can sell a strong product, or keep an over-the-hill product going after competitors have faded. But even the strongest brand name can only do so much.

The best long-term investment options limit the influence of aggressive investments on your portfolio

Aggressive stocks can give you bigger gains than more conservative stocks. But they also expose you to a greater risk of loss. That’s why we recommend limiting your aggressive holdings to no more than, say, 30% of your overall portfolio.

Ultimately, the percentage of your portfolio that you should hold in either conservative or aggressive investments depends on your personal circumstances and risk tolerance—and your own growth investing strategy. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive stocks.

Finding and holding long-term stocks is one of the main investment goals of TSI Network. While it’s certainly a common strategy to buy and sell stocks for short-term gains, we feel that top-quality long-term stocks will gradually accumulate profits over decades. And because you’re investing for a long period of time, short market fluctuations have very little effect on long-term gains. That makes for less stressful investing.

How safe are your investment choices from temporary market downturns?


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