Long-Term Investing Strategies

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Long-Term Investing Strategies

Long-term investors use a number of specific strategies designed to help their portfolios grow in value, as well as to avoid losing their gains to taxes and short-term market changes.

Reinvesting dividends

Certain types of investments, such as stocks, share some of their company profits with their investors. These profits are called dividends. Investors can receive dividends in the form of cash, or they may reinvest them to buy more securities. Reinvesting dividends to build future value is one strategy used by long-term investors.

Buying and holding

Long-term investors also buy and hold. To buy and hold simply means to buy an investment and hold onto it for the long term, rather than actively trading it.

Tax shelters

You can also invest in a variety of tax shelters. Tax shelters are investments designed to reduce taxes. Tax shelters provide income tax reduction through deductions or deferments. They can be used to reduce taxable income, offset income with losses, or create tax credits. Certain types of tax shelters can be very risky investments. Rental real estate is one example of a commonly used tax shelter.

Another strategy for reducing taxes on your long-term investments is to invest in tax-deferred accounts such as individual retirement accounts (IRAs) or 401(k) plans. These types of investments allow your investment to grow tax-deferred until you withdraw the funds at retirement. Early withdrawal penalties are charged on most types of tax-deferred accounts.

A final note

These strategies can help when your investment goals permit you to take advantage of the benefits of long-term investing. Long-term investment strategies can be particularly useful for college savings, retirement planning, and other goals that allow you to hold your investments for an extended period.