9 Rules to Long Term Investing for Young Investors

When you choose to invest, you need a plan. In that plan you must know exactly what you are going to do. You must make certain that nothing is going to stop you from carrying out your plan. Here are 9 rules to long term investing for young investors in no particular order – they are all important:

Rules for Long Term Investing

Rules for Long Term Investing

Rule 1 / 9 Rules to Long Term Investing for Young Investors

Do not directly take anyone’s advice when it comes to investing. Form your own opinions

Be very careful in who you listen to for investing advice. You already know that no one knows the outcome of how anything will play out on any of the markets. If one were to tell you they’ve had lots of success with company ABC and this motivates you to go out and purchase ABC, this will surely get you in to trouble. This would definitely not be following the advice given to you right here. Let’s be very clear, if I talk about specific ETF’s that I purchase for example, you should not be racing to your trader App to purchase it. You have to make sure that the equity is something that is for you. Each equity has a certain amount of risk, where some are more riskier than others.

When it comes to decision making form your own opinion and research as much as you can so that you are most informed.

Rule 2 / 9 Rules to Long Term Investing for Young Investors

Own a balanced Portfolio

You will obtain investing success by owning many different asset classes at all times and keeping them within the correct weightings. The general rule to follow is to maintain 40% of the safe stuff or fixed income and 60% in growth equities. A portfolio with a 60/40 split for balance is known to survive the most difficult of economic disasters including the 2008-2009 era.  You should expect a long term average over 6% growth.

Rule 3 / 9 Rules to Long Term Investing for Young Investors

Stay Diversified!

If you live in Canada for example, Canada makes up for less than 5% of the worlds financial markets. The USA makes up for a lot more of the worlds financial market.  Don’t keep all your money in beaver bucks, diversify by spreading your money around so that you can benefit from more constant returns.  Consider USA, Canada, Europe, Emerging markets and other foreign markets.

Rule 4 / 9 Rules to Long Term Investing for Young Investors

Don’t time the markets!

There is no reason to time the markets for long term investing. It is a tough challenge in order to time the market.  It takes a considerable amount of time to follow the ever changing trends. Rather than waiting for the perfect timing, buy now. If you are waiting for an opportunity for an equity to drop, you can potentially lose out on some significant gains and waste valuable time.

Rule 5 / 9 Rules to Long Term Investing for Young Investors

Don’t chase prices, balance and re balance. 

Every investor faces that moment where their emotion is very difficult to overcome. When that equity that you bought is doing very well and soaring to new levels, the one thing you think of is buy more. This is exactly what you do not want to do. Don’t go chasing equities that are increasing in value beyond your expectations. What you must do is maintain a balanced portfolio but in addition to this you must re-balance your portfolio at least every year. Re-balancing will force out the natural strength in long term investing.

Rule 6 / 9 Rules to Long Term Investing for Young Investors

Don’t sell low – example – when an economic disaster strikes.

When your equities push to new lows that could be as much as 20% lower than where it was several months before, don’t sell off. By selling off you are simply turning an illusory loss in to one that is real.  What this means is that if you own 100 shares in an ETF and they drop 20% in share price, you still have the same number of shares. You haven’t lost anything, unless you click the sell button since you still own the 100 shares.

Take a look at the S&P 500, Dow Jones, TSX for example during the time period in 2008. Note how quickly the markets bounced back during this time. Don’t take a major loss when you don’t need to. Remember, even including these difficult times, long term investing will average more than 6% growth.

Rule 7 / 9 Rules to Long Term Investing for Young Investors

Continue to re-invest all earnings and pour your annual or monthly contributions in to your account.

Make a monthly or annual contribution plan that you must follow at every pay period. Most banks can have you setup an automatic transaction to make this easier for you to accomplish.

It’s important to continue to top off your account following your standard monthly or annual contribution period. It’s also important to take your earnings and reinvest them. Ensuring that you continue to

Rule 8 / 9 Rules to Long Term Investing for Young Investors

Use tax sheltered investing accounts.

Imagine this – your investments making a small salary and yet you do not need to pay a dollar of income tax on this growth as its growing. This is the idea that you need to also keep in mind when investing. In order to maximize earnings you must minimize your tax owed. Use the most appropriate tax sheltered accounts first by maxing them out before moving money to unregistered margin accounts.

Rule 9 / 9 Rules to Long Term Investing for Young Investors

Make a Plan!

Do not open up a single investment account without making a plan. A plan means writing it down or keeping a record of the entire process. Long term investing is very hands off and low maintenance compared with many other types of investing. As a result there is not much planning required as a whole. However, for the minimal amount of planning that is required, we must make certain that this happens and we stick to it.