10 Tips for Successful Long-Term Investing

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While the stock market is riddled with uncertainty, certain tried-and-true principles can help investors boost their chances for long-term success.

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 discuss 10 tips for successful long-term investing that can help you prevent mistakes and hopefully generate some profits.

Key Takeaways

  • The stock market is riddled with uncertainty, but certain tried-and-true principles can help investors boost their chances for long-term success. 
  • Some of the more important basic investment advice includes riding winners and selling losers; avoiding the urge to chase "hot tips"; resisting the lure of penny stocks; and picking a strategy and then sticking to it.
  • If your time horizon allows it, a focus on the future with an eye toward long-term investing can maximize profits for almost any investor.

1. Sell the Losers and Let the Winners Ride

Peter Lynch famously spoke about "tenbaggers"—investments that increased tenfold in value. He attributed his success to a small number of these stocks in his portfolio.

But this required the discipline of hanging onto stocks even after they’ve increased by many multiples if he thought there was still significant upside potential. The takeaway: avoid clinging to arbitrary rules and consider a stock on its own merits.

There is no guarantee that a stock will rebound after a protracted decline, and it’s important to be realistic about the prospect of poorly performing investments. And even though acknowledging losing stocks can psychologically signal failure, there is no shame in recognizing mistakes and selling off investments to stem further loss.

In both scenarios, it’s critical to judge companies on their merits to determine whether a price justifies future potential.

Read about Investopedia's 10 Rules of Investing by picking up a copy of our special issue print edition.

2. Don't Chase a Hot Tip

Regardless of the source, never accept a stock tip as valid. Always do your own analysis of a company before investing your hard-earned money.

Tips do sometimes pan out, depending upon the reliability of the source, but long-term success demands deep-dive research.

3. Don't Sweat the Small Stuff

Rather than panic over an investment’s short-term movements, it’s better to track its big-picture trajectory. 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 20 years or more.

4. Don't Overemphasize the P/E Ratio

Investors often place great importance on price-earnings ratios, but placing too much emphasis on a single metric is ill-advised. P/E ratios are best used in conjunction with other analytical processes.

Therefore, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.

5. Resist the Lure of Penny Stocks

Some mistakenly believe there’s less to lose with low-priced stocks. But whether a $5 stock plunges to $0 or a $75 stock does the same, you've lost 100% of your initial investment, so both stocks carry similar downside risks.

In fact, penny stocks are likely riskier than higher-priced stocks because they tend to be less regulated and often see much more volatility.

6. Pick a Strategy and Stick With It

There are many ways to pick stocks, and it’s important to stick with a single philosophy. Vacillating between different approaches effectively makes you a market timer, which is dangerous territory.

Consider how noted investor Warren Buffett stuck to his value-oriented strategy and steered clear of the dotcom boom of the late '90s—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 his 1989 book "One Up on Wall Street" Peter Lynch stated: "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.

8. 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.

While large short-term profits can often entice market neophytes, 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.

9. Be Open-Minded

Many great companies are household names, but many good investments lack brand awareness. Furthermore, thousands of smaller companies have the potential to 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 (DJIA).

10. Keep Taxes in Mind, But Don't Worry

Putting taxes above all else can cause investors to make misguided decisions. While tax implications are important, they are secondary to investing and securely growing your money.

While you should strive to minimize tax liability, achieving high returns is the primary goal.

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 assets 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 of those, 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 Cons of Long-Term Investing?

The primary con of long-term investing is its opportunity cost. Funds that are tied up in long-term investments cannot be used for other investments, particularly short-term profitable opportunities. This may not be an issue in the future if the long-term investments bring in enough profit.

The Bottom Line

Investing in stocks never guarantees profits and can be challenging due to the constant fluctuation of the markets, movements in the economy, policy changes, world events, and more. Even with a lot of research, it can be hard to pick a winner or know when a winner becomes a loser and vice versa. Heeding to the above 10 tips can help make you a better investor and hopefully bring in some profits.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Peter Lynch via Google Books. "One Up on Wall Street," Pages 32-33. Simon & Schuster, 2000.

  2. Peter Lynch via Google Books. "One Up on Wall Street," Page 261. Simon & Schuster, 2000.

  3. Internal Revenue Service. "Topic no. 409, Capital Gains and Losses."

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