A Simple, 3 Step, Long Term Investing Strategy for You
If you followed this simple, hands-off investment strategy from 2010 to today, you would have doubled your money every 4 years (3.8 years to be precise). $10,000 invested in 2010 would be worth $71,000 today. In this article, I’m going to outline a very simple, easy to follow, long-term investment strategy that will make sure your money is working for you. This guide is for those of us who are stretched on time, for whatever reason and don’t have time to actively be involved in the day-to-day movement of the stock market.
Step 1:
The first step is selecting an index fund – an index fund is essentially a bundle of different stocks combined into one package. This will provide you with sufficient diversity, and reduce risk. I personally picked a fund that follows the NASDAQ as opposed to the S&P 500. The NASDAQ tracks 100 of the largest companies in the U.S. by market cap which is growth-focused. Here are a few funds that can track the NASDAQ …
- QQQ – this is an ETF that I personally own which tracks some of the largest companies in the U.S. It has historically beaten the returns of the NASDAQ over the past 40 years.
- FOCPX or FBGRX – these mutual funds offered by Fidelity provide exposure to large US growth stocks.
Step 2:
In order to maximize the growth of our money, it’s important that we stay invested for the long term and that we invest regularly. In order to do this, we need to establish a dollar-cost averaging strategy. We will invest a fixed dollar amount every month (or every other month, or every quarter), regardless of whether the stock prices go up or down; because we invest a fixed dollar amount, we will naturally buy more when stocks are lower (on sale) and buy less when they are trading higher.
Usually, I make a personal agreement with myself that goes along the lines of:
I will invest $X dollars every Y months.
With online trading platforms today, it’s easy to auto-invest on a set schedule.
Step 3:
Hold (or HODL) on to your investments for the long term. This means holding onto your investments for longer than just a couple of years: no less than 10 years, ideally 20-30 years. Regardless of whatever turbulence in the markets, resist the urge to exist. Stay disciplined in your investment strategy. I recommend setting an exit date – a date when you have agreed to yourself when to pull money out as cash, or when to begin transferring investments into federal bonds, municipal bonds, or low volatility corporate dividend funds.
I made a personally agreement with myself that goes along the lines of
After Z years, I will begin to withdraw my money.
Conclusion
If you’re saving your money in an IRA, Roth IRA, or 401k for retirement, you can also employ this strategy. Even if you are short on time, spending a little effort on investing your money can go a long way in the future. Even this simple strategy of saving can make a large difference in the amount of wealth you can accumulate over time.
If you are interested in taking a more active approach to your savings strategy, I recommend investing percentages of your savings in various asset classes to broaden your exposure (large cap growth, foreign large cap, real estate, bonds, etc.). I would also recommend actively moving portions of your savings into safer investments as you reach your end date.
If you don’t have the time, or don’t want to spend so much time dealing with your investments, following steps 1-3 are perfectly fine and will definitely leave you better off than if you didn’t have a long term investment strategy.