The power of compounding is a powerful concept and the driver for long-term investing it. You invest money and let your investments grow over a longer period of time.
However, nothing good comes easily.
For long-term investing success, it's important to take the time to study your risk tolerance and goals. Then research the products that align with what you need so you can make a well-informed choice about your investment strategy.
Recent reports show that many Indian investors lack the awareness needed to make sound financial decisions. As of March 2021, individual investors held Rs.17.27 lakh crores in mutual funds as of, an increase of 33.84% over March 2020 respectively.
This blog will share ideas for using mutual funds as a long-term investing strategy.
One definition of long-term is a period of 3-5 years or more. A prudent investor considers these time frames to be long term.
One benefit of long-term investments is that they help secure funds for the future. Patience can be rewarded, since the longer one invests, the more opportunity there is for assets to appreciate in value
Here is an example.
Let us say a mutual fund's 10-year historical return results in 12%.
If someone had invested Rs 10,000 ten years ago in this stock, their investment would be worth Rs 22,000 (more than double). Past performance does not indicate future gains; however, the math just shows how long-term investment is good.
Long-term investments come in many types, but the first step is to define what long-term means for you. Multiple portfolios are possible with different goals spanning a range of timeframes from retirement, to education expenses, or other goal choices.
There are multiple long-term investment types, with each of these having their own benefits and risks. For most people it is recommended to diversify across a number of different funds.
For example, a small-cap mutual fund is riskier than a large-cap fund. Additionally, credit risk funds are the most risky type of debt fund.
You should also understand your risk level and what it means with regard to your investments.
For starters, the best long-term investment strategies differ from one another. Once you define your goals and risk profile, you can choose how much money you want to invest in certain kinds of funds for those goals. Different people’s long-term objectives can include retirement income, higher education funding, marriage costs or purchases of a home.
If you are in your 30s, then when you near retirement age, the risk that is associated with your portfolio may change depending on how much risk you desire.
As a principle, you should diversify your holdings. Diversification helps you to invest in most assets without exposing yourself too much. Even if you have a high-risk appetite, having 100% exposure to risky products usually doesn't make sense. And it's also not wise to have an overly skewed portfolio - it pays will over the long term.
Additional Tip: Users should remember to diversify investments and not put too much into a single option - this helps spread the risk of losses over several types of investments.
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