Stocks are one of the best ways to start building wealth early. The problem is, investing in stocks is a subject that is often seen as complex, uncertain, and speculative. Despite the fact that investing has become available worldwide with online brokers such as, Fidelity Investments, and TD Ameritrade, many people are still skeptical. This is due to the fact that big crashes are remembered and put stock trading in a bad light among the population.

However, you can significantly lower the risk of losing money with a long-term investment.

What is Long-Term Investing?

stock sectors

The main focus of long-term investing is on buying shares without the intention of selling them for a long time. This is in contrast to short-term speculation, which has many risks and rarely brings profit to an average investor. For beginner investors, a long-term horizon is a right choice to build up a considerable fortune.

It is almost impossible to become wealthy quickly through stock trading and for the general investors it can only be achieved with a lot of luck, some even compare it with winning a lottery. On the other hand, stock market history shows us that good returns can be achieved almost serenely over periods longer than 10 years.

Fundamental Factors to Consider When Picking Stocks for Long-Term Investing

Here are some signs to keep in mind when choosing stocks for long-term investing.


A company should face as little competition as possible or possibly have no serious competitors at all. This is the case when a company has a unique product, it can either be something that no other company can actually offer or a product that is equipped with superior features that no competitor can boast.

However, evaluating products and their advantages over other products from the outside is not an easy undertaking. To be able to do this, you need to pay attention to the market and also take a close look at the competitors.

Companies with good products and a good market position usually have higher margins. This is because customers cannot or do not want to fall back on other suppliers or substitutes, so the company can charge virtually any price. In addition, high growth rates and returns on equity indicate high entrepreneurial quality.


Markets are constantly growing and falling. And while most people jump on the train when the particular companyโ€™s stock is at its all-time high โ€“ this is the wrong move. If your analysis shows that this company’s stock is the right purchase, do not be discouraged if it falls over a short period of time. Since we are talking about long-term investments, most company stocks bring profit if you do not sell them for over 10 years.


Inflation has a significant impact even in very low doses over a long period of time. For companies, it often causes purchasing or raw material prices to rise, while selling prices do not rise or only rise at a disproportionately low rate. The result is that over time, margins decline. From this point of view, it is important that companies have such a good position or the products are so good that they have the possibility to raise prices over the years again and again at least in the amount of the inflation rate.


The general state of the economy has a great impact on the stock market. If it falls, only a few sectors and companies can escape it. In addition, general price trends and legislation can play a major role. Last but not least, new laws can have an impact on entire industries and their representatives if, for example, the innovations affect their business model.

So, it is extremely important to constantly monitor the markets you are interested in. With the right timing, you can make good purchases or sell with impressive profits.

Differentiate between investing in stocks and funds

Developing an Investment Strategy

Developing an investment strategy is probably the most important thing you will have to do as a beginner investor. Below are a few tips that will help you out in this endeavor.

Set Goals

First of all, every investor should be aware of how long they want to invest their private savings. Closely linked to this question are the investment objectives (e.g. purchase of a property in the future, expenses for children, early retirement). This is because premature withdrawal of the money can be accompanied by losses, for example, if share prices are currently performing poorly.

Research and Analyze

Stock research and analysis is the only way to find the best investment opportunities. By using traditional analytical methods, you can find stocks that are available at a discount to their true value and therefore will be able to generate above-average returns in a long run.

When it comes to the analysis of stocks, there are two main ways to do it:

  • Fundamental analysis. This type of analysis assumes that a stock price does not reflect the real value of the company. It uses various metrics to figure out whether a stock’s price is attractive.
  • Technical analysis. This method assumes that all stock prices move in line with trends. In other words, by analyzing a stock’s past prices, you can predict future price behavior.

You have probably already spotted the difference: fundamental analysis aims to find long-term investment opportunities, while technical analysis is focused on profiting from short-term price fluctuations.

Choose a Broker

Basically, an investor has the choice of whether they want to trade directly on the stock exchange on their own or whether take the more indirect route – with the help of a financial services provider. To trade directly you need to find a suitable broker, luckily the choice of online platforms for stock trading nowadays is very wide.

Tips for Picking Stocks

Once the strategy is ready, it is time to actually pick the stocks you are going to buy. There are also several rules you should follow here.

Diversify Your Portfolio

You shouldn’t invest in just one company, just one industry, or just one country. If you buy a stock, you always run the risk of losing the capital you invested. This risk of total loss also exists with large companies. So spread the risk, and never invest everything in just one stock or one asset class either. Buy stocks, invest in funds, buy real estate and commodities like gold, etc.

Don’t Follow the Herd

Have you heard about that one stock that everybody buys right now? Well, do not buy it yourself before you do a proper stock analysis. People are often wrong and the price increase of the particular stock might be temporary and it will crash pretty soon. Remember that you are investing in the long term so the short rises and falls are irrelevant.

Long-Term Investing

Don’t Put All Your Eggs in One Basket

No matter how convinced you are about a company, don’t forget to spread your risk. So buy assets from many individual industries and countries. If individual positions are too large, a cluster risk arises. If the company gets into difficulties and the share crashes, this will put an extreme strain on your portfolio.

Consider the Risk

Risk-return ratios can also play a role in the actual investment decision. The more risks there are in a portfolio (characterized, among other things, by a higher proportion of equities as well as higher annual volatility), the greater the profit potential in principle but the risks of loss increase as well.

Monitor Your Investments

Once you bought the right assets, you need to periodically monitor your portfolio. Perhaps you will need to sell/buy something or simply reinvest the profits. There are many tools that simplify this process and most online brokers provide this functionality.

Remember that when investing for the long term, you should concentrate on the companies that are showing good results now and have good future prospects. Refrain from speculation on the market and, in case of doubt, choose safety over returns.

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