5 tips for long-term stock investing

Despite the market’s ups and downs, there are several common strategies that you can use to help weather volatility and keep your investments afloat. The following five tips can help you stay the course and make it possible for you to enjoy better long-term results.

1. Focus on the long term

Generally speaking, if you are investing for the long run, such as preparing for retirement or paying off your home, it’s better to let your money go along for the roller coaster ride. If you try to anticipate the market’s ups and downs—a strategy commonly known as “market timing”—you run the risk of selling too soon or being on the sidelines when the market rallies. If you’re concerned about the impact future downturns may have on your portfolio, you may find it comforting to know that the stock market has proven to be remarkably resilient. In fact, the average yearly return of the S&P 500 (one of the most common stock indexes followed by investors) over the last 50 years has been 10.76% (6.59% adjusted for inflation).¹ Of course, there is no guarantee that past market performance with continue in the future. Also, individuals cannot invest directly in an index.

2. Know the risk factors

While the stock market has proven to generate a positive return over a long period of time, there are always risks when investing. That’s why it’s important to work with a financial professional who knows your goals and can help you choose investments you are in line with your risk tolerance. The more comfortable you are with the composition of your portfolio, the more comfortable you’ll be riding out any market volatility that you might experience.

Before you invest your hard-earned money, here are a few common risk factors that you should consider:

• Capital risk: Since the price of any given investment can rise or fall, there is always the possibility of losing your capital (the money you invest). That’s why it’s so important to evaluate the quality of each investment and its potential downside.
• Tax risk: Some investment products are more tax efficient than others. When you are weighing your options, you may want to consult an accountant or a tax expert to determine the impact each investment may have on today’s—and tomorrow’s—tax returns.
• Default risk (also known as credit risk): Some financial products, such as bonds, offer higher returns if you are willing to take on more risk (which in this case is the possibility that the issuer will not be able to keep its financial commitment). Be sure to understand the credit rating associated with your investment, and decide for yourself if you are comfortable with the accompanying risk.
• Inflation risk: During periods of high inflation, the cost of goods and services rises dramatically. So it’s important to look for investments that can keep pace with—or exceed—the rate of inflation. Otherwise, you run the risk of falling behind on your financial goals.

3. Investing diversification

“Diversification” is a strategy that many people use to reduce some of the risk that’s built into their investment portfolios. Rather than concentrate all your money in one or two assets, this strategy divides your investment dollars across multiple product categories and asset types. Ideally, your portfolio will contain a mix of stocks, bonds, and other assets that offer a wide variety of risk/return characteristics or that react differently to specific market conditions (such as low interest rates or higher taxes).

• With investing diversification, you reap the benefits when one or more categories are doing well, while limiting the potential for harm when one or more categories perform poorly.
• If you invest in volatile assets, such as junk bonds or small-capitalization companies, you should also invest some of your money in assets in that are generally considered to be more stable and secure, such as large, well-capitalized companies or U.S. Treasuries, so the risk profile of your investment portfolio balances out.
• Investing in mutual funds, variable life insurance, and other products that are managed by professional money managers may be a good idea, too, because some diversification is often built in. Depending on the product, you may be able spread your investment over a wide range of asset classes or pick and choose from a menu of options. That way, all you have to do is select a product that fits your needs and is diverse enough to make you feel comfortable with your decision.

4. Dollar cost averaging

Dollar cost averaging is a strategy that calls for systematically investing a fixed amount of money at regular time intervals (say, $100 a month). Since prices will rise and fall over time, your $100 will buy more stocks when prices are low, and fewer when prices are high. Over time, these discrepancies usually offset each other, so you end up with a reasonably priced portfolio.

• With dollar cost averaging, you don’t try to time the market. Rather, you invest at regular intervals and hope that by doing so, you’ll even out the effects of market volatility, thus reducing your risk.
• Dollar cost averaging does not assure a profit, nor does it protect against losses in declining markets. To be effective, there must be continuous investment, regardless of price fluctuations. Investors should consider their financial ability to continue to make purchases through downturns and periods of financial turmoil.

5. Protect your legacy while you invest

While investing in the market can be financially rewarding, the importance of protecting yourself and your family against unforeseen events is extremely important. In many cases, you can use products like whole life insurance, fixed annuities, and individual disability insurance to help safeguard your wealth and give your loved ones the financial security they deserve. With these protections in place, you may find that you feel more free to invest and are more willing to remain committed for the long term.

Frequently asked questions

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¹Cory Mitchell, “Historical Average Stock Market Returns for S&P 500 (5-Year to 150-Year Averages),” Trade That Swing, October 24, 2023

All investments involve risk, including possible loss of principal. There is no guarantee any strategy will be successful. Diversification does not assure a profit or protect against market loss.

New York Life Insurance Company (NY, NY). Securities products are offered through NYLIFE Securities LLC (member FINRA/SIPC), a Licensed Insurance Agency and a New York Life company.