Long term stock investments – Some tips to get better returns

Many investors would agree that long term stock investments are one of the most reliable investment strategies. This strategy has been proven time and again that in the long term equities would give better yield than any other investment avenue. Though there is no thumb rule for investing in stock markets, it is always better to understand your risk appetite first. Once you do that, you should be able to find a suitable stock investment strategy.

Let us look at a few principles which should be followed while following the long term investments strategy.

1. Hold on to winners and sell off the looser – This is easier said than done. Many investors have personal investing rules like “I will sell this stock once I make 30% profit” or “I will hold on to this stock until it gives me the invested value back”. While some of these self imposed rules are good, this strategy may prevent you from reaping maximum benefits. Since you are in for a long term, ride on your winners using buy and hold strategy and get rid of losers.

2. Don’t follow tips from friends and relatives blindly – Many people invest their hard earned money just because their friends got a tip from somewhere. This follow the crowd strategy may end up make losses for you. Many people react n news but the fact is the stock price has already been changed before you would know the news. Always do your own research before following a tip.

3. Don’t invest in penny stocks – Some investors put in their money in penny stocks just because they come cheap. Long term investors should resist the temptation of investing in penny stock without researching the company. Though they can give some nice profits in short term, they are also at a high risk of making your investment to $0.

4. P/E ratio – Investors often give this ratio too much importance. Some investors often decide the buy or sell of a stock based on P/E ratio alone. This is not a right thing to do. Though P/E ratio is important, it should be used in conjunction with other factors of the company.

5. Don’t worry about short term market movements – Many investor panic when there is turbulence in the stock market. A long term investor need not worry about stock fluctuations in short term since he can ride these waves off easily. You should have confidence on your research and the stocks which you have picked. Also, while buying stock you don’t have to worry about pennies in market order versus a limit order. In long term, it hardly makes any difference.

6. Tax implications – Don’t base your decisions based on tax which you need to pay on your investments. Tax on equity gain is an important consideration but it should not alter your decision while selecting the right stock to buy. Tax should be a secondary consideration since there are little taxes to be paid for long term investing.

These are a few things which should be kept in mind while doing long term stock investments. Just make up your mind and follow a particular investment strategy. No two investors are same since their needs and risk appetite are different therefore you don’t need to follow anyone else.

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