Building wealth in the stock market is much more than just “hot stocks” or timing market swings. As per Kavan Choksi / カヴァン・チョクシ, experienced and successful long-term investors follow a variety of time-tested strategies that assist them in weathering market volatility while also growing their portfolio over the span of multiple years or decades.
Kavan Choksi / カヴァン・チョクシ briefly talks about strategies to follow for long-term stock investing
Anyone wanting to invest for the long run, like preparing for retirement, should let their money go along for the roller coaster ride. In case one tries to anticipate ups and downs in the market or “time” it, they might run the risk of selling too soon or staying on the sidelines as the market rallies. The stock market has proven to be remarkably resilient over the long term. Therefore, instead of worrying over the short-term movements of a stock, one should try to track its big-picture trajectory is better. Successful investors generally focus on the larger story of a stock and do not get swayed by short-term volatility. While active traders use minute-to-minute fluctuations to lock in gains, long-term investors succeed on the basis of periods lasting years.
To grow wealth over time, diversification is extremely important. It is a strategy used by investors to lower the overall risk built into their investment portfolios. Instead of concentrating money on one or two assets, the diversification strategy divides the investment dollars across several product categories and asset types. The portfolio of the investor shall ideally feature a mix of bonds, stocks and other market assets that provide a variety of risk/return characteristics, or which react differently to particular market conditions. Investing diversification allows the investors to enjoy the benefits when one or more categories are doing well, as well as limits the potential for losses in situations where one or more categories perform poorly.
In case one is investing in volatile assets like small-capitalization companies, they also must invest a certain amount of funds in assets that are considered to be more stable and secure, like U.S. Treasuries or well-capitalized companies. Doing so would be useful in balancing out the investment portfolio. As some diversification is often built into them, choosing to invest in mutual funds can also be a good idea. Based on the product, investors might get to spread their investments over a wide variety of asset classes or pick and choose from a menu of options.
Dollar cost averaging is another popular strategy for long-term stock investing. This involves investing a fixed amount of money at regular time intervals. As prices shall go up and down over time, that money would buy more stocks when prices are low, and fewer if prices are high. As per Kavan Choksi / カヴァン・チョクシ, these discrepancies generally offset each other over time, making sure that one ends up with a reasonably priced portfolio. It is important to not try to time the market with dollar cost averaging. Instead, one must invest in regular intervals in the hope that doing so would even out the effects of market volatility and hence reduce the overall risk. For dollar cost averaging strategy to be effective, continuous investment is necessary, regardless of price fluctuations.
