Long Term Market Considerations

In today’s rocky market conditions, many investors are balancing their more cavalier intuitions with practical investing. Budget tips, stock market advice, and general financial tutelage are valuable gifts to offer someone who is looking for financial freedom. For long-term portfolio advice, there are three tips in particular (one concerning mutual funds, two concerning bonds) that are well worth your consideration:

Invest in Individual Stocks Only if You Know Exactly What You’re Doing

Otherwise, invest your money in mutual funds. The advantage here is that the investments are spread over a number of different stocks, which means that your portfolio doesn’t completely rely on the fate of one stock, but rather the totality of the mutual. The closer the fund is to a achieving a broad coverage of the market the better you can feel. For example, a mutual fund that covers the S&P 500 might be the best bet for people who are uninitiated in mutual funds, as some can be fairly tricky themselves. You might make less money with a mutual fund, but you’ll sleep better at night.

Consider Investing in Bonds

A bond itself is a guarantee that whatever amount you invest will come back to you with an added percentage of value after the allotted time you’ve agreed to leave the money in the bond has passed. Traditionally, bonds are considered very safe forms of investment (although recent market upheavals have shown that even bonds are not always 100% secure—a good life lesson). What many see as a safer bond is known as a municipal bond. Municipal bonds cover things like road repairs, public buildings, etc. Typically, these bonds can be attractive because they are, in most cases, very reliable—but also, in many cases, your returns are not taxable. Therefore, the value of your income is not being diluted by federal or state taxes.

Consider Junk Bonds

Perhaps in a separate category—because they are not considered as safe—you should evaluate the so-called junk bond. The junk bond (more politely known as a high yield bond) is rated as less trustworthy in the bond rating system, but it pays very considerable returns. If you can tolerate moderate risk-taking, junk bonds might be very attractive to your long term investing strategy.

Your long term strategy will likely have to involve some form of risk. If you want no risk whatsoever, you can always put your money in CDs. But remember, CD rates in this period of time are almost negligible. Therefore, if you’re willing to take a reasonable risk while still safeguarding your investment for the future, consider mutual funds, bonds, and possibly junk bonds.