Long-Term Mutual Fund Investment Strategy (2024)

FAQs

Which strategy is best for long-term investment? ›

Diversify your portfolio: Diversification is key to reducing risk in your mutual fund investment portfolio. Spread your investments across different asset classes, industries, and regions to minimise the impact of market volatility.

Long-term investors tend to balance the overall risk of their portfolios by owning a diversified mix of stocks, bonds and cash. Over longer periods, proper diversification can help to increase the likelihood that you'll have some assets that gain value even while others decline.

All investments carry some risk, but mutual funds are typically considered a safer investment than purchasing individual stocks. Since they hold many company stocks within one investment, they offer more diversification than owning one or two individual stocks.

Possibly the greatest of these risks is that a portfolio with too much cash won't earn enough over the long term to stay ahead of inflation and that it won't provide enough protection against inevitable downturns in stock markets.

Step 1: Start with risk profiling, i.e., to understand your risk tolerance and capacity. Knowing the amount of risk one can take before investing in mutual funds is essential. Step 2: After completing the risk profiling, the next step is asset allocation, where you must divide your money between various asset classes.

Investment Strategy #1: Value Investing

They buy stocks that appear to be trading for less than what they're really worth. They're willing to bet that these stocks are being underestimated by the stock market and will bounce back over the long run. As those stocks grow in value, they turn a profit for the investor.

How long really is long-term investing? Generally, any asset you hold for over five years is considered a long-term investment and you usually distribute your money across a range of assets to build a diversified investment portfolio.

What is the long term strategy for building wealth? ›

Dollar-cost averaging is a valuable investment strategy that can help you grow your portfolio consistently and mitigate the impact of market volatility. With dollar-cost averaging, you invest a fixed amount of money at regular intervals, regardless of the investment's current price.

Many market experts recommend holding stocks for the long term, as stock market returns can be very volatile in shorter time frames. Investors have historically experienced a much higher rate of success over the longer term, which is a benefit of having a plan and sticking to it, especially in volatile markets.

Mutual funds are generally considered a safer investment than stocks because they offer built-in diversification—something that helps mitigate the risk and volatility in your portfolio.

In the category of market-linked securities, mutual funds are a relatively safe investment. There are risks involved but those can be ascertained by conducting proper due diligence.

However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.

There are no hard-and-fast rules for the level at which stops should be placed; it totally depends on your individual investing style. An active trader might use a 5% level, while a long-term investor might choose 15% or more.