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While the stock market is always going to come with uncertainty, certain tried-and-true principles can help investors boost their chances for long-term success.
Building wealth in the stock market isn’t simply about finding “hot stocks” or timing market swings perfectly. Instead, successful long-term investors focus on time-tested strategies that help them weather market volatility while growing their portfolios over the years or decades.
Some investors lock in profits by selling their appreciated investments while holding onto underperforming stocks they hope will rebound. But good stocks can climb further, and poor stocks risk zeroing out completely. Below, we provide 10 tips for successful long-term investing that can help you prevent mistakes while positioning yourself to generate profits.
Key Takeaways
- Long-term investing success relies more on disciplined strategy than finding “hot” stocks or timing market swings.
- Successful investors typically hold their winners longer while being willing to cut losses on underperforming investments.
- Research shows investors who stay invested through market cycles with diversified portfolios have the highest probability of positive returns.
- Following proven principles like focusing on future potential rather than past performance helps avoid common investing mistakes.
- Having a clear investment strategy and sticking to it consistently is more important than trying to maximize every trade.
1. Adopt a Long-Term Perspective
It’s best to avoid the “get in, get out” mentality of quickly trying to profit from trades. If you’ve done your research and found a solid stock that continues to be a good investment, holding onto it for the long term should bring profits.
“It’s important to decide whether one is an investor or a trader. For most people in most situations, a long-term, buy-and-hold, diversified, low-cost investment approach is likely more suitable than active trading,” said David Tenerelli, CFP. “This is because it helps the investor ignore the ‘noise’ and instead focus on a disciplined approach.”
Important
Tenerelli suggested that a good strategy for long-term investing is dollar-cost averaging—putting a set amount away periodically, no matter what. “It takes discipline to continue to buy investments during a market downturn, but a shift in mindset can help—rather than fearing financial loss, an investor can reframe it as buying stocks ‘on sale,'” he said.
While large short-term profits often entice market newcomers, long-term investing is essential to greater success. And while short-term active trading can make money, this involves greater risk than buy-and-hold strategies.
Just small, periodic investments in the S&P 500 starting in 2000, for example, would have netted terrific gains, despite wars, pandemics, financial crises, and market bubbles.
2. Don’t Chase a Hot Tip
That “can’t-miss” stock tip from your neighbor? It’s probably best to ignore it. Even if it comes from someone who seems knowledgeable, investing based on tips is like building a house on sand. No matter the source, never accept a stock tip as valid. Always do your own analysis of a company before investing.
Tips do sometimes pan out, depending upon the source’s reliability, but long-term success demands your own research.
Note
Every stock purchase deserves your own careful examination—understanding what the company does, how it makes money, and why it might succeed in the future.
3. Don’t Sweat the Small Stuff
Rather than panic over an investment’s short-term movements, tracking its big-picture trajectory is better. Have confidence in an investment’s larger story, and don’t be swayed by short-term volatility.
Don’t overemphasize the few cents difference you might save from using a limit versus market order. Sure, active traders use minute-to-minute fluctuations to lock in gains, but long-term investors succeed based on periods lasting years.
Note
“The best time to invest is when you have the money. Buy and hold until you reach your financial goals rather than trying to time the market,” said Christina Lynn, a behavioral finance researcher and certified financial planner at Mariner Wealth Advisors.
4. Look Beyond the Price-to-Earnings (P/E) Ratio
The P/E ratio, which compares a company’s stock price to earnings, is valuable information but not the whole story. A low P/E doesn’t automatically mean a stock is cheap, just as a high P/E doesn’t always signal an overpriced stock.
For example, for a long time, Netflix Inc. (NFLX) looked expensive by P/E standards. Nevertheless, it was creating massive shareholder value. You need to consider growth rates, market position, and many other factors.
In addition, P/E ratios should be taken within the context of specific industries and economic sectors. Below is a table showing some of the differences sector to sector:
5. Resist the Lure of Penny Stocks
Penny stocks—typically shares trading for less than $5—might seem like bargains, but they’re often more like lottery tickets than investments. Their low prices often reflect serious business problems rather than opportunity.
In fact, penny stocks are often riskier than higher-priced stocks because they tend to be less regulated and often see much more volatility.
Important
Read Investopedia’s 10 Rules of Investing by picking up a copy of our special issue print edition.
6. Pick a Strategy and Stick With It
There are many ways to pick stocks, and sticking with a single philosophy is important. Having an investment strategy is like having a road map—it keeps you on course when markets get rocky. Consistency is key, whether you prefer value, growth, or dividend investing.
Consider how noted investor Warren Buffett stuck to his value-oriented strategy and steered clear of the dotcom boom of the late 1990s, consequently avoiding major losses when tech startups crashed.
7. Focus on the Future
Investing requires making informed decisions based on things that have yet to happen. Past data can indicate things to come, but it’s never guaranteed.
In “One Up on Wall Street,” legendary investor Peter Lynch wrote, “If I’d bothered to ask myself, ‘How can this stock possibly go higher?’ I would never have bought Subaru after it had already gone up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that.”
It’s important to invest based on future potential versus past performance.
Note
A company’s potential for growth matters more than its past performance for its stock price.
8. Sell the Losers and Let the Winners Ride
One of the most challenging aspects of investing is knowing when to sell. Many investors do exactly the wrong thing: They sell their winners too early while hanging onto losing investments, hoping they’ll bounce back.
Peter Lynch made much of his fortune by identifying stocks that became “tenbaggers“—investments that increased 10 times in value. But capitalizing on these rare winners required the discipline to hold onto them even after they had doubled or tripled, as long as the company’s growth potential remained strong.
Note
The key is evaluating each investment on its own merits rather than using arbitrary rules like “sell after a 20% gain.”
But this required the discipline of hanging onto stocks even after they’ve increased many times over, if he thought there was still significant upside potential.
While accepting losses can be psychologically difficult, holding onto losing investments too long can be dangerous. There’s no guarantee a declining stock will recover, and that money could be better invested elsewhere.
9. Be Open-Minded
Many great companies are household names, but many good investments lack brand awareness. Furthermore, thousands of smaller companies can become the blue-chip names of tomorrow.
This is not to suggest that you should devote your entire portfolio to small-cap stocks, but there are many great companies beyond those in the Dow Jones Industrial Average. For example, NVIDIA (NVDA) was a backwater stock trading for pennies not that long ago. By the mid-2020s, it was a driver of major gains for its investors.
10. Keep Taxes in Mind, But Don’t Obsess
Tax efficiency matters, but it shouldn’t drive your investment decisions. Think of taxes like air resistance when driving—worth considering, but not the main factor in choosing your route.
Long-term capital gains rates (for investments held over a year) are generally lower than short-term rates, but making good investment decisions should be your primary focus.
What Is Long-Term Investing?
Long-term investing is generally considered to be three years or more. Holding onto an asset, such as stocks or real estate, for more than three years is considered long-term. When individuals sell holdings at a profit, capital gains taxes are charged for investments held for longer than one year. Investments held for less than a year are charged taxes at an investor’s ordinary income, which is not as favorable as the capital gains tax rate.
What Is the Safest Investment With the Highest Return?
No investment is 100% safe, but some are safer than others, and some have higher returns. Such assets include certificates of deposit, high-yield savings accounts, Series I savings bonds, Treasury Bills, and money market funds.
What Are the Drawbacks of Long-Term Investing?
The primary con of long-term investing is its opportunity cost. Funds tied up in long-term investments can’t be used for other investments, particularly short-term profitable opportunities. However, long-term gains might make missing out on those prospects seem minor in comparison.
The Bottom Line
Successful long-term investing isn’t about finding the next hot stock or timing market swings perfectly—it’s about following time-tested principles consistently.
By focusing on fundamentals like holding quality investments for the long term, doing thorough research rather than following tips, and maintaining discipline during market volatility, investors can build wealth steadily over time.
While no strategy guarantees profits, applying these 10 principles can help investors avoid common pitfalls and make better-informed decisions for their financial futures.
