10 Long-Term Investing Strategies Advisors Love

Think long term for greater success.

Investors often fall into two camps: those chasing short-term gains and those who are in it for the long haul. While short-term gains are hard to come by and even harder to maintain, smart long-term investing strategies have a much higher likelihood of coming out ahead over time. The challenge is determining the right long-term strategy to reach your goals. Here are long-term investing strategies financial advisors love to use with their clients.

Have a solid financial plan.

“While it’s hard to know what tomorrow will bring, it’s important to know what you want and need down the road,” says Chuck Cavanaugh, director of Wealth Planning, Insurance & Annuity Distribution for U.S. Consumer Wealth Management at Citi. This is where having a financial plan comes into play. Your financial plan should serve as a roadmap to help you navigate where you are today to where you want to be in the future. This guideline will help you determine the best long-term investment strategy to meet your goals. “Of course, like any journey, unexpected twists and turns can come up, but your financial plan is your north star, which can grow and adapt over time,” Cavanaugh says. “To ensure it’s solid, go over your plan at least once a year with your advisor, especially as you face major life changes.”

Don’t try to time the market.

Trying to time the market is the nemesis of successful long-term investing. “Timing the market is one of the biggest myths of investing, and most times, no one gets it right,” Cavanaugh says. Long-term investors are almost always better off using a more regimented approach, such as dollar-cost averaging, where you invest a set amount over a regular period without consideration of the current market value. That said, studies have also found that if you have a lump sum to invest, it’s usually better to just invest it right away rather than adding smaller amounts over time. “While investing in companies or sectors that you’re passionate about is important, you can’t let emotions cloud your judgment when it comes to buying and selling stocks in the short term,” Cavanaugh says.

Stay diversified.

The stock market can be a bumpy ride. To help mitigate the ups and downs you’re bound to experience, advisors recommend diversifying your portfolio. Cavanaugh says to distribute your investment dollars among different asset classes, such as stocks, bonds, commodities and industries. The key to a diversified portfolio is using investments that don’t all move in the same direction at the same time. For instance, when stocks are down, bonds tend to be up. This ensures that if the stock market takes a downturn, your entire portfolio won’t go with it. “The portfolio construction process may involve technicalities or industries you’re less familiar with, and that’s why speaking with a financial advisor is incredibly helpful,” Cavanaugh says. “There’s no one-size-fits-all approach when it comes to investing, so getting customized guidance in a way that you’re most comfortable with is key.”

Look for quality.

“Of all the factors to consider when investing in the long term, quality is one of the most important factors for our clients and often the most overlooked,” says Seth Howard, a financial advisor at Edward Jones. There’s often the temptation to buy what’s popular in the market, but this may not be the right fit for your portfolio and may carry more risk than you realize. Rather than jumping into all the shiny new investments, you might do better by looking for those less glamorous but more dependable investments that have a track record of doing well over time. “Most successful individual investors make their money over time, not overnight,” Howard says. It’s the quality investments that have a higher probability of sustainable growth that will see you through to the next decade and beyond.

Dampen volatility.

“Any long-term investing plan should focus on managing uncertainties that may potentially derail the plan,” says Ted Wozniak, U.S. head of asset management distribution for SEI. SEI favors long-term investing strategies such as volatility dampeners, or risk parity equity strategies. “Managed volatility strategies can be a long-only equity solution for investors to incorporate into their portfolio that enhance the overall risk-return profile,” he says. “(They) provide equity-like returns that are more attractive than alternatives with meaningfully less risk.” Risk parity involves building portfolio allocations around the objective of a balanced degree of risk by analyzing the risk of various asset classes. While the strategy is more complex than traditional investing and often best done by professionals, it can help you build a long-term portfolio that is less dependent on traditional equity volatility, Wozniak says.

Protect against inflation.

SEI also uses inflation-protection strategies with all its clients, Wozniak says. For conservative clients, it uses predominantly Treasury inflation-protected securities, or TIPS, as clients move up the risk spectrum, incorporates commodities and adjusts the client’s exposure to inflation-sensitive equity sectors. “We typically are long inflation-sensitive areas of the market, including consumer staples, health care and telecom, and short less sensitive areas like consumer discretionary, info-tech hardware and materials, among others,” Wozniak says. He recommends allocating anywhere from 5% to 15% of your portfolio to inflation protection, “with the higher amount in more aggressive, longer-term portfolios.” If you use TIPS, commodities and inflation-sensitive equity allocations, he suggests allocating 50% to TIPS and 25% to commodities and inflation-sensitive equities.

Use annuities for safety and predictable income.

A long-term strategy Jeff Busch, partner of Lift Financial in South Jordan, Utah, likes for clients who need a little more safety and more predictable retirement income is the use of annuities. “Annuities can generate steady growth as well as a predictable income in retirement,” he says. “This strategy is best used for investors that like the income guarantees, don’t need the higher return potential of the full market and are also not comfortable with market volatility.” Annuities are particularly appealing as a “safe money” alternative to bonds in a low-rate environment. “I like to refer to this as a ‘paychecks and play checks’ strategy, meaning someone who is accustomed to receiving a steady paycheck throughout their working career may like to establish a steady paycheck to cover living expenses in retirement, using a portion of their portfolio to purchase an income-producing annuity,” he says. “This can give you confidence in your retirement plan and allow a little more freedom with your other investments to accomplish other goals.”

Think about asset allocation.

Successful long-term investing is not just about how you invest and what you invest in; it’s also about where you keep those investments, Cavanaugh says. Where you hold your investments can have a major impact on your tax bill, something that can quickly eat into long-term returns. Tax-advantaged accounts, such as individual retirement accounts, or IRAs, are great places for higher-income-producing investments, as that income won’t be taxed until you withdraw the money. This tax deferral is wasted, however, on investments that are already tax-advantaged, such as municipal bonds, which are not taxed at the federal level and sometimes not at the state level, either. “Long-term tax efficiency can enhance portfolio performance over time, and conversely, chasing short-term returns can create tax inefficiencies,” Cavanaugh says.

Don’t forget taxes.

Some of the most underutilized long-term investing strategies today center around tax savings, says Ginger Ewing, a private wealth advisor at Ameriprise Financial. “Too many people forget about the effects of taxes on their investments, and it can have a large impact on the performance outcome over a long period of time.” To help mitigate your long-term taxes, she recommends using one or more of the following: a donor-advised fund charitable account, cash-value life insurance and Roth IRA strategies. Donor-advised funds let you donate appreciated assets to a 501(c)(3) charity through a special charitable account. Donors can avoid capital gains on the donated asset while taking a tax deduction for the donation, and then the funds are invested to grow tax-free for the charity. Cash-value life insurance can provide tax-free access to the cash value in the policy, which also grows tax-deferred. Through Roth IRA contributions or conversions, you can access the money in retirement tax-free without any required minimum distributions.

Stay invested and rebalance annually.

Market corrections happen, yet rebounds can also happen with the same ferocity. July 2022 is a perfect example as it marked the strongest month since November 2020. “During periods of market volatility, it is helpful to stay invested and rebalance regularly to get back to your target equity, fixed-income and alternative allocations,” says Chris Dhanraj, managing principal of investments at CLA Wealth Advisory. “At the same time, market sell-offs provide an opportunity to put new cash to work — we especially like high-quality municipal bonds, dividend-paying equities, preferred stocks and even income-producing real estate.” When market volatility makes you nervous, just remember you’re playing a long game; short-term fluctuations may look scary, but you can outlast them.

Long-term investing strategies advisors love:

— Have a solid financial plan.

— Don’t try to time the market.

— Stay diversified.

— Look for quality.

— Dampen volatility.

— Protect against inflation.

— Use annuities for safety and predictable income.

— Think about asset allocation.

— Don’t forget taxes.

— Stay invested and rebalance annually.

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10 Long-Term Investing Strategies Advisors Love originally appeared on usnews.com

Update 08/10/22: This story was published at an earlier date and has been updated with new information.

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