A Guide to Long-Term Investment Strategies (2024)

If you're looking to continually improve your market knowledge and experience, then school's always in session. Rain or shine, every market day presents us with a little something we can learn and add to our market wisdom.

With that said, no matter how sophisticated your financial knowledge, it always helps to revisit a few of the bedrock basics that support the rest of your investment knowledge.

Are you investing to buy a house in a couple of years, or are you investing for a retirement that seems faraway? Are you investing to achieve or maintain a certain retirement lifestyle for yourself and your spouse, or are you looking to build a sizable legacy for your kids?

Whatever your financial goals may be—and you may have several—it helps to know exactly what you're trying to build before you start rummaging through your financial toolshed.

Some goals may require conservative strategies or products, such as fixed income assets, while others may require a more aggressive approach that could include small-cap or emerging-market stocks. You have a diverse set of tools and strategies to work with. Before you learn to use them, make sure you're choosing the right ones.

You've heard the term "risk tolerance." There's a point beyond which market volatility may cause you to bail out of your investment, or in layman's terms, cry "uncle."

Perhaps your risk exposure was too large, or maybe your investment rationale wasn't very good to begin with. Whatever the case may be, it helps if your risk tolerance limit is based on an objective measure rather than an emotional response. If you don't know your risk limits, then how will you know if you're taking on too much risk or not enough?

Consider this: When the markets crashed in March 2020 amid the onset of the COVID-19 pandemic, many investors sold a large portion (or all) of their equity holdings in a massive bout of panic selling. But the market rebounded sharply over the next two months, and many who unloaded their portfolios likely missed out on the rebound. In contrast, those who managed their risk levels might have had the opportunity to rebalance or add to their portfolios when asset values were approaching discount levels.

Gauging your personal risk tolerance might help you stay on top of market opportunities, rather than allowing the market to roll over and "flatten" your portfolio.

We've heard it countless times before: diversify, diversify, diversify. It's like a looping mantra in investing circles.

There is some truth to it, to say the least. When a stock undergoes a major decline, it can be for a good reason (maybe it's overvalued but otherwise solid) or a bad reason (the company is a sinking ship). The same principle can be scaled up and applied to industries, sectors, and whole asset classes (stocks, bonds, commodities, etc.).

We all know it's prudent not to place "all your eggs in one basket," as the saying goes. So, many investors diversify to spread their risk across a broader range of instruments and markets. This exposes a portfolio to a wider range of potential return sources. And if a segment of your portfolio is underperforming, then hopefully other segments of your portfolio are faring better. Ideally, a diversified portfolio can give you a wide range of growth opportunities with something of a built-in hedge. That's the long-term goal behind diversification.

There's no investment approach, strategy, or principle that's so solid or robust that it can't or shouldn't be questioned from time to time. Markets and economies are dynamic. Every now and then, you'll need to consider tweaking your portfolio strategy.

Know when and how to question your own investing ideas and beliefs. This doesn't mean you have to be overly fickle, changing your long-term investment strategy too hastily or too often. But it also doesn't mean you have to remain stubborn, sticking to an investment strategy that's clearly not working.

It's hard to find the right balance between long-term conviction and short-term flexibility. But questioning your investment assumptions, ideas, and strategies can help you better understand what you're doing, how you're doing it, and what else you can do to improve your portfolio.

If your investment time horizon is decades away, whatever happens in the market today, this week, the next few months, or even the coming years may not significantly impact your long-term investment returns in a negative way. Of course, if the market retreats for an extended period, dollar-cost averaging, or rebalancing might help when the market eventually gathers enough steam to advance.

When intraday market volatility rises to lofty levels, that kind of price action can be enough to frighten any investor. But if you're setting your sights several years or decades down the road, what happens today shouldn't matter to you all that much.

To put things into perspective, the longest bear market in U.S. history, according to FactSet data, lasted for three years, from 1946 to 1949. The average bear market from the 1940s to the present lasted around 14 months.

Historically, in contrast, bull markets have lasted longer and have risen higher than any bear market has endured or fallen. This doesn't guarantee that future bulls or bears will stay within these averages, but it could add some perspective to the nature of market fluctuations.

Markets rise and fall, economies expand and recede, and intraday swings shoot up and crash down. If your financial goal is years or decades away, what happens in the market at this very moment shouldn't cause you to sell or buy on impulse, which is considered the classic fear-and-greed scenario. In short, don't let short-term volatility sway you into action. Cooler heads often prevail.