Strategies for Picking Successful Long-Term Stocks

Successful stock investing isn’t a short-term proposition. If you’re looking to make double-digit gains in the next 30 days, you’re better off heading down to the nearest casino and throwing the dice. For the most risk-averse among us, there are ways to generate reasonable returns from the stock market by choosing the right long-term investments. Here are seven tips and strategies for picking long-term investments with high yield potential.

  1. Think Long-Term

Earning money in the stock market is a long-term proposition. Just like gambling, if you think that you can out-guess the market for short-term gains, you’re going to lose. The best strategy is to pick strong companies, buy stock, and then hold onto it for years (think decades). You can also minimize your risk further by choosing some mutual funds or ETFs in different industries as long-term investments.

  1. Set Realistic Expectations

Your long-term strategy should incorporate some realistic expectations. Over the long-term, an annual return of 10% on your investments is reasonable. If you take the time to pick the right stocks and mutual funds, you’ll outperform this in a bull market and might fall slightly short when the market is depressed.

  1. Target “Trifecta” Dividend Stocks

The best way to beat that 10% annual return over time is to target the right types of stocks. A “trifecta” stock is one that compounds positive returns by combining three income generating qualities: valuation increases, growth, and dividends. One of the best examples of a trifecta stock is Coca-Cola Co. (NYSE: KO). The stock has delivered an average return to investors of 12% over the past three decades. The company has increased its dividend each year for 50 consecutive years and now has a 3.5% dividend yield.

Not unlike the long odds and big returns from a horse racing trifecta, trifecta stocks are hard to predict but richly rewarding for those fortunate to identify and invest in them early on.

  1. Avoid Penny Stocks

If you’re picking strong stocks and targeting trifecta dividend stocks, you should be staying away from penny stocks. Many new investors are enticed by penny stocks because they’re cheap and could provide substantial gains.  Unfortunately, they can also deliver monumental losses because the companies are risky and often unregulated. Stick with the major indexes and the proven companies.

  1. Do Your Own Research

Stock investing isn’t as confusing as some of the professionals want you to believe. Instead of jumping on a hot stock tip that could be a dud, do your own independent investment research and learn how to evaluate both stocks and companies.  For example, the price-earnings ratio (P/E ratio) of a stock can give you some valuable information, but you should also investigate other areas such as growth rates and the particular industry.

  1. Don’t Worry About Market Swings

If you are a long-term investor, you’re going to experience some downswings in the market as well as some periods of rip-roaring gains. It can be disheartening to see your gains take a tumble but resist the urge to dump all of your shares in a panic. Even stock market crashes recover fairly quickly in today’s market, and you are better off holding on for the ride long-term.

  1. Consider Fees and Taxes

One of the things that you should consider when you make any investment are any fees or taxes that will take away from your gains. If you buy individual stocks online, you’ll probably pay a trade fee of around $7 for each purchase. Some mutual funds have management fees that you should investigate before you buy. Finally, take advantage of all of your tax-deductible retirement account options for investments but don’t put tax choices above picking the right stocks to achieve your long-term investment goals.

Too many investors hope to beat the market with frequent trades of winning stocks. On average, the investors that follow these tips have the best chance of earning reasonable long-term gains on their investment.

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