If you want to build wealth over time, one of the best things you can do is invest. And if you want to increase the chances that your portfolio will pay off in the long run, you need to choose your investments carefully.
As you consider which investments to include in your long term portfolio, here are 5 things to look for:
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1. Strong Fundamentals
First, look at the fundamentals underlying the investment. These are “big picture” items that indicate how an investment is doing in general. Items like the management philosophy, profit margin, P/E ratio, and political climate in a country can all be indications of fundamentals.
Investments with strong fundamentals are likely to weather market changes. While they see problems during times of turmoil, they don’t usually lose value at the same rate as weaker investments, and they are more likely to recover.
2. Staying Power
What kind of staying power does the investment have? What are the prospects that the asset will remain viable in the future? While day to day and month to month movements might be choppy, consider looking at the long term trends. While historical performance doesn’t guarantee a good future, an investment with a strong history of sticking around in the past is likely to have staying power for the future.
3. Steady Growth
It’s exciting to see dynamic growth over a three or five year period. However, even though it’s exciting to see that kind of growth, too often it’s the sign of a fad. If you have the stomach for it, and if you have the money for it, you can see solid gains in the short term. But you might have to unload at the right time (and pinpointing that right time is difficult) in order to make a profit.
If you want a long term investment, you need to look for steady growth. Regular, steady growth may not be exciting, and it may not be huge. But over time, it is a little more reliable, and you are likely to come out ahead in the long run, without too much stress and anxiety.
How is the investment poised to adapt to changes in the future? This is especially important if you are looking for long term value stocks. With technology changing the way we do things, and with other changes coming as well, it’s important to choose investments that are likely to adapt to the future. If an investment has a history of innovation, it makes sense to stick with it. Another possibility is to choose an investment that isn’t as affected by the passage of time.
Each long term investment you choose for your portfolio should complement the others in your portfolio. This means that your long term choices should take into account your desired asset allocation, as well as the shifts you are likely to experience as you approach your goal.
One of the best ways to ensure that you get proper diversity in your long term portfolio is to invest in funds, rather than trying to invest in individual assets. You are more likely to find investments with staying power and long term value when you create a portfolio using funds.
What do you look for in a long term investment?