There are many investing strategies which can be used to build a large financial portfolio. One of the simplest and most effective strategies is to buy low and sell high. So instead of trying to guess the short-term trends of the stock market, try following a proven method and let the profits take care of you.
What is long term value? It’s different for everyone. But for most people, long term value is the total return (in the form of increased purchasing power) of an investment, generally over a period of 10 years.
In other words, if you invest 100 dollars in a savings account and then the market returns 120 percent over a period of 10 years, your long term value is $120. It’s not that you won’t be able to buy 100 dollars’ worth of goods in the market today, you may very well be able to, but your purchasing power will increase by 120 percent.
This is why the strategy of buying low and selling high is often employed in the stock market. The investment bank Lehman Brothers states that the key to becoming a successful investor is to implement this strategy successfully, and they provide these tips to help you do just that:
1. Focus on the Long Term
The most effective way to ensure your wealth is to invest in long-term securities (like bonds and stock index funds). While it is always tempting to want to be the one to “spot” the next hot stock, it’s important to keep your eye on the long-term picture. The goal is to grow your money over time, not to make a quick buck.
“Hot” stock prices often lead to flash crashes, where one or more stocks spike or collapse in price very quickly, often leading to significant losses for those participating in the market at the time. Recognizing this, many successful investors will avoid the market during these brief moments and take a step back. They then wait for the price to recover before continuing with their investment activities.
2. Consider All Sources Of Income
Do you have a high income? Are you paid well for your talents and skills? You might be tempted to invest all of this money in the stock market and let it grow on its own. But you should first perform a financial analysis to determine how much money you’re actually making, and how much you could be earning if you were actively pursuing alternative investments. Once you know how much money you have to work with, you can begin to consider your investment options more consciously. And here’s the good news: you may have a perfectly suitable income stream (like rent from a property or an investment dividend) which you’ve never considered before!
Consider the case of Phil, a 44 year old real estate agent who has worked very hard to earn a six-figure income. He now makes $80,000 a year, but until recently, he was earning only $60,000 a year. Like many of us, he grew up watching TV shows like Fox’s The Waltons and dreamed of owning a business one day. But like many others, his plans were derailed by the Great Recession. His income fell by 43 percent, and he was forced to take a job selling cars at a used car dealership to make ends meet. He desperately needed some way to earn more money, so he began looking for options.
After doing some research, Phil discovered that he could set up a passive investment portfolio which would allow him to earn high returns without needing to work the phones for a living. He soon began to grow his portfolio with an S&P 500 index fund (this is a type of fund which holds 500 of the largest companies in the United States).
In the year since he began investing in this way, his portfolio is now worth over $100,000 and it continues to climb each and every month. This is due to the fact that the market is now providing him with high rates of return. While it’s not always the case, it’s safe to say that Phil’s experience is a testament to the power of the passive investment strategy.
3. Take Advantage Of The Tax Treatment
The United States provides some of the most fantastic opportunities for investors and retirees, as well as those looking for a safe place to store their wealth. The government provides a tax exemption for people who invest in certain types of property, as well as for those who invest in individual stocks. These opportunities are so beneficial that even passive income investors (like Phil) will sometimes consider taking full-time jobs just to make sure they can benefit from these provisions.
4. Start Small
When you’re first getting started, it’s important to remember that the stock market is very, very risky. The last thing you want to do is put all of your money in at once, even if it’s only a few thousand dollars. Instead, take your time to learn the ropes, watch the prices carefully, and look for signs of trouble, like rising interest rates or a possible economic slowdown. When you’re feeling comfortable, invest a small amount of money in the stock market, and then increase your investment as you gain experience.
5. Be Alert To The Trends
Just because the market is doing well today, that doesn’t mean it will stay this way. There are always short-term trends (like the recent rise in oil prices or the upcoming U.S. presidential election) which can cause temporary spikes or declines in the overall market. In general, if you want to grow your money over the long term, it’s best to avoid these situations. Instead, find a method which will allow you to withstand these short-term difficulties and continue your investment journey successfully.
What About Dresses, Shoes And Sunglasses?
A lot of us were surprised to discover that Amazon.com, the world’s largest online retailer, owns a fashion line which is worth over a billion dollars. This shouldn’t have been a total surprise, because as Amazon’s CEO, Jeff Bezos, said in 2014:
“If you can’t measure it, you can’t improve it.”
And he’s right. When you own a company like Amazon, it’s safe to assume that you’ll eventually find your way into the fashion industry. But just because they have lots of money to spend doesn’t mean that they’ll always be able to keep up with the trends, so it’s best to avoid buying their products if you want to keep your money for long term investing.
How To Become A Better Investor
If you’re looking to build a long-term investment portfolio, you’ll want to learn as much as you can about the subject. There are many courses available online which can teach you the basics of analyzing the economy and the markets, and the more you learn, the better you’ll be able to participate successfully in the investment world. Here are some things you might consider doing:
1. Read A Lot
If you want to become a successful investor, you have to start by reading a lot. But not just any old book, you need to read something rich in content which will inform and challenge you. Start by reading the general literature on investing, especially the works of Benjamin Graham (the father of security analysis) and Warren Buffett (probably the greatest investor of all time).
These are only a few of the incredible books available on investing. And if reading isn’t your thing, then maybe listening to good books on audio is. You can find a lot of public domain investment books which are absolutely free online. Just do a quick internet search, and you’ll find many titles to choose from. But just keep in mind that you’ll need to be the actual owner of these books to borrow them, as libraries do not lend out investment books (at least not legally).
2. Learn To Value Tangible Assets
One of the best courses which can be taken to learn how to value tangible assets correctly is called The Accounting Course from Columbia University. It’s a very basic introduction to the field of accounting, and it’s excellent for anyone who wants to learn how to value a business, an apartment, or a stock.You’ll learn about the difference between accounting and economics, and how accounting can be used to its full potential to value tangible assets. The course consists of lectures which are helpful and interesting, as well as a bit of a challenge. You’ll have to complete assignments, which involve either buying or selling an asset (a business, an apartment, a stock) and entering the resulting information into a spreadsheet.