Readers' Tips for Financial Renewal, Part 3: Investing for the Long Term

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investingA few weeks ago, we asked DailyFinance readers for their best tips for putting your financial house in order. Many offered advice on saving and careful spending, but the general consensus was that the best route to financial security lies in making your money work for you. And, ultimately, most agreed, that requires patience: While some suggested ways to achieve fast gains, most agreed that staying in the market for the long haul is the best way to ensure that you end up with a full bank account -- not an empty wallet.

Before we go any further, a caveat: While some of those who offered advice claim to be certified investment professionals, we did not verify their credentials or their claims. We're passing on many of their investment suggestions, but we ask our readers to take these suggestions advisedly -- and to consult with an investment professional before making any bold moves.

Slow and Steady Wins the Race

Many of those who offered advice began with the idea of defining your goals: Start by figuring out where you want to end up -- and what it will take to get you there. "Meek6" advises readers to calculate how much money they need "to generate income for the future and keep the principal intact." Once you reach that amount, he suggests, "retire when your financial bucket is full."

"Ed P" suggests that we "stick with a diversified group of mutual funds and hang on through thick and thin." Aged 70, he writes that "I have moved about one third of my portfolio into various fixed income funds." Given the fluctuations of the market, Ed's strategy may seem overly optimistic, but in his view, the future isn't quite so cloudy: "Just have a little faith that the capitalist system will rebound and survive."

"Francesmous" suggests a similarly restrained strategy: "You should always invest not with the goal of 'making a killing,' but of holding on to a solid stock for the long haul." With that in mind, she advises, the key is finding long-term, consistently performing stocks, not short-term Roman candles that are likely to flame out: "Do your homework and select stocks that pay a reasonable dividend and that have performed well historically," she suggests. "Put as much effort into choosing a stock as you would when researching a new car purchase."

Go With What You Know

And what do those stocks look like? Sometimes, opines "Chris W," they're brands you already know and trust. When he decided to manage his own money, he focused on "a couple of stocks with publicly available information, and importantly, companies whose products/services I could understand." In his case, they were Apple, Ford and Google, although he pulled out of the carmaker when things started to go south. But now that Ford is doing better, he's reconsidering: "I now like Ford again. I may lighten up on Apple a bit at some point in the near future and put one third of my money back in Ford."

Chris isn't the only reader who likes Ford, although others viewed the automaker's stock more as a short-term investment. "JMoss111" says his strategy is to "Watch for stocks that have tanked, but you know the company isn't going away." The example he uses is Ford, which he says he "bought at $3.00 and sold at $17."

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But while JMoss111's short-term strategy worked out well in that instance, most readers advise taking the long view. "Doc Dearth" advises "dollar cost averaging," a strategy that involves consistently investing the same amount of money at specific time intervals -- every paycheck, for instance. Using this method, DocDearth notes, "you buy more stocks, mutual funds, or ETFs when the market is down and less when it is up." Done properly, dollar cost averaging "eliminates and evens out the fluctuations and volatility the market gyrations that scare people off."

"Sue S." agrees with a lot of the preceding advice, but she's applying it to a different asset class: real estate. Part of her strategy lies in thinking about long-term fundamentals, not short-term gains: "While most of the nation was caught up in the housing frenzy, my husband and I invested in a small college town. We started slow and plan to hold on to the properties for a long time." The college town idea was solid -- after all, higher education is a growth industry, and students will always need a place to lay their heads. In Susan's case, the first place they bought "has been consistently rented to college students," and has paved the way for other purchases.

Everyone Loves Dividends

Those who submitted advice universally agreed that it's worthwhile to pursue stocks and mutual funds that pay dividends. Likewise, all suggested that the smart move is to continually re-invest those dividends, as it effectively compounds the investment. "Ray" notes that his dividends are a major source of income: "My annual dividends now exceed the amount I invest on an annual basis."

But not all investment decisions are so easy ... or so uncontroversial. For example, "Doc Dearth" strongly encourages readers to max out their 401(k) investments. In his view, if you aren't taking full advantage of your employer's 401(k) or similar plan -- and especially getting the full matching funds they offer, you're being "beyond foolish. There is no better way to save and invest regularly than having this money deducted directly from your pay check."

But "Rogsuehull" advises exactly the opposite course: "Ditch the high cost mutual funds in IRA's and 401k's as soon as you can," he says. Instead, he suggests, "Convert to high dividend individual stocks as you go."

That contrarian advice aside, Rogsuehull also offered some of the conventional wisdom offered by other readers, noting that investors should buy stock for the long run, should invest additional money every month, and should reinvest dividends. Steady investing, he says, will make you "happy for the rest of your life."

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.


Previous articles in This Series
• Readers' Tips for Financial Revival, Part 1: Smart Saving
• Readers' Tips for Financial Revival, Part 2: Spend Wisely




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