The 3 investment strategies that will pay off in the long run

We explain how three important strategies will benefit investors who participate in the stock markets for high returns.

The investments universe is so vast and full of different options, that investors can often be left confused about the investment strategy that they must adopt. Often, it pays to adopt a slow and steady approach for higher gains. A long term strategy also helps investors gauge the markets better and adjust their investments accordingly.

The following three strategies pay off in the long run:

1 Understanding ‘risk’. Most investors equate risk with the rise and fall of the stock market. This definition is often misleading. Rise and fall of rates is simply a matter of market trends. Risk is better seen from the point of view of loss of capital – it is the chance that the invested capital will be lost in totality. Once you correct your understanding of ‘risk’ and what it entails, it becomes easier to choose the correct investment option. At the same time, it is worthwhile to consider the element of ‘volatility’. The more volatile a stock, the riskier it is because it is faster in losing money. However, short term volatility can be offset by long term investment strategy in that stock.

2 Stay invested in both long and short term options. The story of successful investments is both a short and long one! Most investors consider the time frame for investments basis the time frame in which they want the invested capital to show gains. A good example is the population of near-retirement persons who want short term instruments which will mature by the time they quit the workforce. However, whatever one’s age and risk appetite, the investments portfolio must comprise instruments that show both short term and long term profiles. Hence, the first good investment strategy is to build a portfolio for both short term and long term time frames. The strategy must involve getting enough returns to meet your cash inflows for the first 10 years without liquidating other assets. Later, the long term part of the portfolio deals with conservative instruments that can withstand market downturns better. These can come via fixed income securities.

3 Follow a consistent plan. Changing the goalposts of investment goals and returns does not help at all. You might dabble in a series of short term investments for a while, but this does not provide stability. Once your advisor draws up a detailed investment strategy for you (it may span a series of years that are broken down into 5, 10 or 15 years), you MUST stick to it despite short term volatility and gains. Your investment plan is drawn considering your risk profile and overall objectives, and deviating from the plan often is counterproductive to the growth of the portfolio.