Long-term investments will pay off over several years. You should determine the rate of return you want and look for a mutual fund that averages that rate of return over a five or ten year period. When you invest for the long-term you should not panic when stocks drop and you should not sell when the market looks bad. The market has always recovered from drops in the past, although it may take time to do so. However, if you pull out when prices are low, you lose the money that you initially invested. If you leave your investments alone ,then they should recover over time.
The longer you have to invest your money the bigger the risks you can take.
If you need the money in the next few years, you will want to take a more conservative approach to your investments and may opt to put it in the bank or another more secure type of investment. Another factor in choosing the type of investment may be what you are planning on using the money.
- “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
- “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
- “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
- “Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.”
- “If a business does well, the stock eventually follows.”
- “Price is what you pay. Value is what you get.”
- “Time is the friend of the wonderful company, the enemy of the mediocre.”
Clearly, Warren Buffet is a value investor. He looks for great companies, or “wonderful” ones as he puts it. He is not looking at hot sectors or stocks that may shoot up now, only to cool and fall later. He wants an efficient running business that has favorable long-term prospects.
Additionally, although he wants great stocks, he does not want to pay a premium price. Warren uses a specific calculation to arrive at a fair valuation, then waits until a market correction or crash puts those prices on his doorstep.
An investor may get back less than the amount invested. Information on past performance, where given, is not necessarily a guide to future performance."