10 Timeless Tips for Achieving Long Term Investment Success — Slowly but Surely
Souvik Dey, Sid Roy & Sanjib Saha
25 February 2025
At Dollar Mentor, each of us has a few favorite investment lessons. Some may seem counterintuitive or even insignificant at first, yet they have a profound impact on long-term investment results. Here’s a compilation of our most cherished nuggets of wisdom that guide our personal investment approach.
Parking money in a bank account may not be as safe as it seems
Unless the bank’s interest rate consistently exceeds the inflation rate—which is rarely the case—your money loses value over time as inflation erodes its purchasing power. Even if you’re earning a generous 4% annual interest on a certificate of deposit at your favorite bank, you’ll still lose purchasing power if inflation remains at 5% during the holding period.
Investment fees can significantly erode your overall returns over time
If you believe that a 1% annual fee for managing your investments is reasonable, think again. Over 30 years, even if your investments grow at an average of say 6-12% per year, that 1% annual fee can reduce your portfolio’s value by nearly a quarter.
Pulling money out of the stock market, even briefly, can significantly harm long-term investment returns
For example, the S&P 500 delivered an average annual return of nearly 10% over the 20 years starting in 2004. However, missing just the best 10 days during that period would have slashed the return by almost half. Since predicting future market movements is nearly impossible, it’s wiser to remain invested through market fluctuations instead of timing the market.
Only a small number of companies generates the majority of wealth in the stock market
Over the past 90 years, just 4% of all public companies have been responsible for the positive overall market returns above the risk-free interest rate. This highlights the immense challenge of successful stock picking and explains the underperformance of most active investment strategies. By investing in a passive broad market index, investors can share in the success of all future market winners.
There is always a hot stock or a killer investment that everyone is talking about but chasing them is almost never a prudent idea
Hype often drives certain companies or investments to unsustainable price levels. In most cases, those prices eventually crash. Remember the frenzy around Palm Pilot, BlackBerry, Pets.com, Enron, Nikola, Theranos, WeWork, Zoom, Tilray, GoPro, Lucent Technologies, Beyond Meat, and countless other investor favorites? Instead of trying to get rich quickly by chasing hot investments, it’s far more prudent to invest in a broad and diversified stock portfolio.
If every investment in a portfolio is performing well at the same time, it’s probably not diversified enough
A well-diversified portfolio consists of a mix of uncorrelated or loosely correlated investments. This ensures that when some investments struggle, others perform well, cushioning the impact. Diversification helps reduce risk and volatility, but it also means that certain investments will underperform relative to others at any given time. As market conditions fluctuate, the winners and losers will change. If all investments tend to move together, the portfolio lacks true diversification.
The simplest way to consistently buy low and sell high is through periodic rebalancing
When the portfolio allocation drifts due to the recent stock market highs, rebalancing by selling stocks back to the target allocation is effectively “selling high”. Likewise, during market downturns, when the stock allocation decreases, rebalancing back to the desired allocation is essentially “buying low”. Regular rebalancing aligns a diversified investment portfolio with long-term success.
If the percentage of bonds & cash in the investment portfolio is more than the investor’s age, it may be too conservative
A simple way to manage investments over time is to start with more stocks when young and gradually increase safer investments like bonds and cash as retirement approaches. Holding too much in bonds and cash too early can slow down growth and reduce long-term returns. A handy rule of thumb is to keep the percentage of bonds and cash at or below the investor’s age. What about those who’re comfortable with more risk? A lower allocation might be just fine.
The best move in a stock market downturn is to buy more if possible. The next best thing? Stay put and stick to the investment plan
Selling in a market panic locks in losses. During the 2008 financial crisis, many investors panicked and sold their stocks, permanently shrinking their retirement savings. But those who stayed invested saw their portfolios recover and grow within a few years.
The key to a good long-term return is to stay invested with patience and keep costs/taxes low, rather than constantly tweaking or chasing complex strategies
Many investors believe that the more they analyze and adjust their portfolio, the better their results will be. But studies show that complexity and frequent changes often do more harm than any good.
A simple, steady investment approach works best: choosing simple investments that fit the needs, sticking with the plan and giving them the time to grow. Patience and consistency will pay off far more than over-analysis or constant adjustments.
We hope that you like these tips and already following them. Please let us know if you need any help in understanding one or more of these tips, and where they came from.
Happy Investing!