Investing is a serious business. You are deciding what to do with your hard-earned money, and while you want to earn the fantastic rewards the stock market can bring, there is a healthy fear of losing it all over imagined gains.
Long-term Investing is the very best plan for wealth creation. You may have heard it repeatedly, but do you know why? It is because almost any time is an excellent time to be a long-term investor. With a well-planned diversified portfolio and a long-term perspective, you can find various stocks to buy that would help you consistently build your wealth.
What are good stocks to buy as an investor for the long term?
The best stocks to buy for the long term can be segregated into a few categories based on their growth potential, inherent risks, dividend payout capability, etc. You can know what stocks to buy if you know the types and decide what percentage of your investment should go into which investment category.
So, where can you find the best stocks to buy for the long term?
Here are the categories a person can explore to decide on their long-term investment portfolios
Fast Growth-Oriented Stocks or Small Cap Stocks:
These are the best stocks to buy when investing for the long term. Growth-oriented stocks are typically riskier stocks but promise higher growth and returns. Small cap companies can be good stocks to buy in this sector – as they also show incredible growth but are pretty volatile in the short term. So high growth-oriented companies are good stocks to buy when you have a long time horizon to let their success story play out. However, these companies rarely pay dividends as the profits are ploughed back into the business.
Payout or Income Stocks:
Income stocks are good to buy when you want to invest in stocks that will generate dividend payouts while also appreciating in time. Companies that pay dividends are older, more mature companies that do not need to reinvest their entire profit. Therefore, such stocks are a well-balanced option for your portfolio. Dividend Stocks, while more stable than small cap or equity stocks, still go through ups and downs as the market fluctuates and, therefore, could be held as long-term investments. REIT or real estate funds are an excellent example of dividend payout funds that show appreciation in the long term.
Large-cap Stocks
Large-cap Stocks are great stocks to buy for budding investors. These companies are well-established businesses that have large cash reserves at their disposal. Remember, a large-sized company does not mean that they grow rapidly. Large-cap stocks offer the benefit of higher dividends and steady growth compared to small and mid-cap stocks. Such stocks ensure that the capital is preserved over the long term.
Defensive Stocks
Defensive stocks are stocks whose share prices aren’t as affected by the stock market movements. Also known as low-volatility stocks, defensive stocks often operate in industries that aren’t as sensitive to changing economic conditions. These companies usually deal in essential products and services like consumer staples. A defensive stock can be a value, income, non-cyclical, or blue-chip stock. Such stocks often pay dividends too, and that income can offset falling share prices during tough times.
ESG Stocks
Investors may also consider investing in ESG stocks. Such stocks focus on protecting the environment, social justice, and ethical management practices. For example, an ESG stock could be a company that follows ethical sourcing practices or agrees to reduce more of its carbon emissions than the national and industry targets. ESG stocks have become popular among millennials recently.
The Long term investing mindset
You may now understand the mindset required for long-term investing as it affects your choice of stocks. Your must pick a particular investment strategy and stick with it. If you get spooked midway when the market is going through some fluctuations and decide to sell, that would be detrimental to your long-term portfolio.
So decide your time horizon and stick to it. Stay calm despite market fluctuations; do not panic and sell. Instead, diversify your investment with the help of an expert. Diversification is key to building a safe long-term investment portfolio.
A pro tip – Stagger the rate at which you invest – so you get a balanced investment cost price, i.e. invest through SIP on a systematic monthly basis. Lastly, sit back, keep regular tabs on your investments, and watch your money grow.