10 Long-Term Investing Strategies That Work

Bring balance into your investment plan

A quote attributed to Titus Maccius Plautus, a Roman comic playwright, has relevance for today's investors: "In everything the middle course is best: All things in excess bring trouble to men." Balance serves as the ideal goal for long-term investing. Needs change over time, and shortcut strategies that may work one year can prove ineffective, and even costly, the next. U.S. News asked experts to weigh in on some of the soundest investing strategies to use throughout your life. Here's a look at 10 of the best long-term investment strategies.

Have a financial plan.

A financial plan can help you figure out your risk tolerance at different points in your life as you move toward a clear retirement goal. Sticking with a sound plan can also help keep you from trying to time the market based on emotions and can help you stay disciplined, which is a key factor in long-term investing. "If an investor is honest about what they want to accomplish at each phase of life, along with understanding their risk profile, the investing strategy will be designed to help them stay the course and remove the opportunity to chase investments based on emotional triggers," says Jack McGowan, CEO with Two Point Capital Management. A financial plan will help you focus on the types of stocks and bonds in your portfolio and whether you opt for a traditional 60/40 portfolio or you adjust that mix. "Once you understand your return objective and risk tolerance, a proper asset allocation can be established, and appropriate benchmarks can be applied," says KC Mathews, chief investment officer at UMB Bank.

Start investing as early as possible.

The longer money is invested, the more potential it has to grow. "When you start early ... not only do you get the compounding effects of the capital, but you also create the opportunity to buy at an average cost over time," says McGowan. Someone who contributes $1,000 a year to an IRA from ages 20 to 30 and then stops (not that stopping is a good thing) has an edge over someone who starts at 30 and invests $1,000 annually for 35 years. Assuming a 7% annualized return, the first person will have $168,515 at age 65, and the second will have $147,914. "Invest early and often," says Robert Johnson, a finance professor with Creighton University.

Don't try to time the market.

Time is your friend in the market over the long run, but you shouldn't try to time the market in the short term. "It requires two decisions: when to get out and when to get back in," McGowan says. "(It's) tough to get both right over time." Obsessing about getting out and back in at the right times can lead to missing out on big recovery days and can significantly lower returns for long-term investors, says Mathews. "Given that the best performance days tend to be clustered among and closely after the worst performance days, staying invested through market cycles can help achieve better long-term results," says Theodore Schneider, portfolio advisor with Round Table Wealth Management.

Invest in what you understand.

Stay away from investment strategies that are too obscure, complex or out of your wheelhouse to keep up with. Make sure you understand the sector, the industry and the company if you're going to invest in a particular stock. "Many investors are drawn to companies that produce products they like and use," says Johnson, but they "often confuse a good product with a good investment opportunity." If you're going to put money in a new restaurant chain that's becoming popular or a new product that's being praised by friends and family, make sure to also find out whether those companies have a sustainable business and are attractively priced, he says. However, many individual investors don't have the time or expertise to understand the intricacies that make specific stocks in specific sectors good investments, McGowan says. That doesn't mean you can't invest in them. "The more important thing is to understand the investing approach as it will provide clarity to each investment," he says.

Add a 401(k) match to your mix.

There's no shortage of investment strategies out there, but free money is the only guaranteed, risk-free home run you'll ever get. Yet many people still don't participate even when they have access to a 401(k) with an employer match. Don't be like them. "A 401(k) can provide free money, systematic investment and some barriers to exit," McGowan says. "By establishing your 401(k) or investment account, you are making yourself and your future a priority." Verbatim Financial founder John Stoj recommends setting up automated payroll deductions up to the maximum allowable amount for a 401(k) and then adding other available investment savings to a taxable brokerage account. You may also want to consider a Roth 401(k). "Roth contributions go in after tax but grow and come out tax-free if you follow the rules," says Ryan Johnson, director of portfolio management and research at Buckingham Advisors. You can also take on more risk with Roth assets because they may be the last source of funds tapped during retirement, he says.

Set up and stick with sound cash flow management.

Setting up automatic retirement savings contributions is one way to do this. But you can also apply the strategy of automatically investing money (each month at least) during your working years to other areas. You may want to establish a rainy day fund of three to six months' worth of living expenses in a savings account. As you're working on that, you can also be funding your 401(k). Once those are well-established, or even as you're getting your savings off the ground, you can also set up automatic contributions to a brokerage account. Of course, as you're doing this you'll have to make choices about how to spend your money each month. Do you really need that subscription to your fourth streaming service?

Set it and forget it with funds.

Once you've decided how much will go into liquid savings accounts versus brokerage and retirement accounts, you may want to just sit back and watch your investments grow over time. After all, you're not day trading here. "For the vast majority of folks, set it and forget it is the best long-term investment strategy," Stoj says. One way to do this is to access the equities market through low-cost index funds instead of trying to pick individual stocks. "Likely the only fund anyone will need for most of their pre-retirement investing lives is one total market fund, like Vanguard's Total Stock Market ETF (ticker: VTI)," he says. Creighton University's Johnson says most investors should be guided by the "keep it simple, stupid" mantra. "Investors simply can't afford to make oversized bets on individual securities," he says. "Trying to pick winners, for most, is a loser's game. The solution is to invest in diversified funds, and you don't need to pick those winners."

Make stocks a cornerstone of your strategy.

Bonds are an important part of any portfolio for stability and income. But with today's low interest rates, stocks will probably be your main earners, either from price appreciation or dividends. "A portfolio of dividend-paying stocks may complement your bond portfolio," Mathews says. "Many quality dividend-paying stocks increase their dividend every year, protecting your purchasing power." Compare that with bonds that have a set interest payment, leaving you open to inflation eroding the value of those payments. "The surest way to build true long-term wealth and achieve financial security is to invest in the stock market," Creighton University's Johnson says.

Diversify for a smoother ride.

One great thing about long-term investing is that time tends to smooth out volatility. You can also manage volatility with diversification. In addition to diversifying a portfolio with bonds, you'll also want to own a range of stocks or funds in different sectors and different geographies. Within equities, consider growth versus value stocks. Beyond stocks and bonds, you might want to invest small portions of your portfolio in other asset classes. "Balance your choices with a well-rounded portfolio of global and domestic equities, bonds, cash, gold and perhaps some cryptocurrency, which might turn out to be a good hedge in the event we face many more years of high inflation," says David Weliver, founding editor of personal finance website Money Under 30.

Rebalance only when necessary.

This last tip gets back to having a solid financial plan. Despite having the best laid plan and allocation strategy, you'll need to tweak your portfolio from time to time. This isn't the same thing as timing the market. Rather, it's calculated selling or buying to return your portfolio to your original financial plan. Say you've opted to go with a 60/40 portfolio, but stocks have had a massive rally while bonds have largely stayed put. That means that original ratio will be out of whack. So you might need to sell some of your stocks or buy some more bonds to return to your strategy. Think of it as a tune-up for your long-term investment strategy.

10 long-term investing strategies that work:

-- Have a financial plan.

-- Start investing as early as possible.

-- Don't try to time the market.

-- Invest in what you understand.

-- Add a 401(k) match to your mix.

-- Set up and stick with sound cash-flow management.

-- Set it and forget it with funds.

-- Make stocks a cornerstone of your strategy.

-- Diversify for a smoother ride.

-- Rebalance only when necessary.