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Mark Hauser, co-managing partner at Hauser Private Equity, highlights vital strategies for long-term investment success.

A well-crafted investment strategy can form the foundation for positive financial results. Investors who perform their due diligence, and who perhaps work with a qualified financial advisor, are well-positioned to select investments designed to optimize individual outcomes. Each investor can choose a short- or long-term investment strategy.

Private equity principal Mark Hauser discusses five reasons investors should consider a long-term investment approach. He also highlights three common types of long-term investment strategies. Finally, Mark Hauser emphasizes that investors should consider working with a financial advisor aligned with the individual’s financial objectives.

5 Reasons a Long-Term Investment Strategy Makes Sense

Investors who engage in short-term day trading, or who try to sync their investments with the market’s trajectory, are locked into an uncertain investment strategy. Checking investment prices multiple times daily, and agonizing over when to buy or sell specific holdings, can cause mental stress and potentially lead to poor trading decisions.

In contrast, long-term investors minimize their investment downside risks. In fact, private equity principal Mark Hauser says a long-term investment strategy brings five significant benefits. These include quantifiable upsides along with structural and quality-of-life advantages.

Decreases Overall Investment Risk

Short-term investors often enter and exit the market based on their perception of market conditions. While standing on the sidelines, however, they could easily miss a potentially beneficial investment opportunity.

In contrast, says Mark Hauser, long-term investors have made the commitment to stay in the market until they reach their financial goals. These investors are much less likely to be excluded from realizing significant gains.

Reduces Investment Transaction Commissions

Investors who execute stock (and other securities) trades typically pay a commission on each transaction. For perspective, a day trader can pay thousands of dollars in annual commission costs. Even investors with a few monthly trades will find their profits decreased accordingly.

In contrast, says Mark Hauser, long-term investors rarely worry about occasional commission charges. Over time, a well-structured investment portfolio can easily absorb these costs with little effect.

Builds Interest Compounding into the Equation

By definition, short-term investors don’t hold stocks long enough to benefit from dividends. However, an astute long-term investor figures their dividend compounding into their financial strategy.

To illustrate, the long-term investor reinvests their stock profits (or dividends) to obtain a higher account balance. Over time, regularly compounding dividends on multiple stocks can significantly enhance the investor’s portfolio.

Enables Easier Correction of Investment Errors

Even with thorough due diligence and professional advice, an investment can prove to be the wrong move. Perhaps a company’s industry experiences an unexpected downturn. Alternatively, the business could be hit with significant backlash because of an environmental or regulatory issue. Regardless of the cause, a short-term investor could see substantial negative impacts that lead them to sell that stock before it is further devalued.

However, private equity expert Mark Hauser emphasizes that long-term investors often maintain their holdings with strong-growth companies that experience an unforeseen problem. The long-term investor believes that, over time, the company (and the investment) will recover from the setback. Therefore, these long-term investors often follow the “buy and hold” investment strategy.

Minimizes Investors’ Emotional Attachments

Day traders and other short-term investors could be unnerved by the market’s periodic rises and falls. Individuals seeking short-term gains may be spurred into making emotion-driven decisions that are not in their best interest. Saddled with losses, they are more apt to further erode their investment portfolios.

However, private equity expert Mark Hauser notes that long-term, strategic investors are less likely to be rattled by sudden market hiccups. With a solid investment strategy in place, these investors are focused on their portfolios’ long-term growth. Therefore, they have almost completely removed the emotional element from their market interactions.

Two Primary Guidelines for a Cohesive Long-Term Strategy

Planning an effective long-term investment strategy requires careful thought and (ideally) professional guidance. Private equity principal Mark Hauser offers two guidelines that apply to every investment scenario.

Establish an Objective Risk Tolerance Level

Every investor has a defined risk tolerance level. Whether this threshold pertains to the initial investment or relates to the investor’s exit point, this is ideally an objective rather

than an emotion-based criterion. Investors who clearly understand their risk tolerance can better identify market opportunities. In addition, these investors can more easily pinpoint excessively risky investments.

Create a Diversified Investment Portfolio

Investors often prefer to spread their risk by investing in varied industries and businesses. This diversified approach creates more potential sources of investment returns. A diversified portfolio also enables better-performing assets to ideally compensate for assets currently in the doldrums.

3 Fundamental Long-term Investment Strategies

In the investment arena, the “one size fits all” approach rarely results in an optimal outcome. Because every investor operates with a distinctive goal, they should adopt a long-term investment strategy that meshes with that objective. Here, Hauser Private Equity’s Mark Hauser highlights three common long-term investment strategies.

Value-Focused Strategy

A value-focused investor searches for undervalued companies based on common fundamentals. Examples include the firm’s revenue and profit margin. The business’ competitive strength is also a key consideration.

In a value-focused strategy, the investor plans to purchase stocks with low multiples of sales or earnings. Alternatively, the investor seeks out stocks with good dividends. Either tactic can help decrease investment risk while still presenting potential opportunities.

Growth-Focused Strategy

A growth-minded investor ferrets out companies with a record of rapid expansion. Equally importantly, market and economic conditions appear favorable for this growth to continue. However, investors cannot assume this will be the case.

However, certain growth-focused businesses haven’t yet seen a profit or have realized only small profits. That said, companies with strong momentum, and with good potential for higher sales and earnings, could be worth consideration.

Dollar-Cost Averaging Strategy

Certain investors put a dollar-cost averaging strategy in place. Here, the investor purchases stocks at predetermined intervals over an extended period. A dollar-cost averaging strategy minimizes an investor’s exposure to risk and market volatility.

Dollar-cost averaging contrasts with the practice of executing substantial stock purchases at specific points in a firm’s business cycle. Alternatively, these investors attempt to time their stock purchases around larger market dynamics. The volatile trading environment certainly increases investment risk.

Making the Best Strategic Investment Decision

Even a well-coordinated, long-term investment strategy doesn’t exist in a vacuum. Large-scale economic developments, industry advances and contractions, and market vagaries can all upset the status quo. When that occurs, a long-term investor should decide whether to adjust their strategy or leave it unchanged. For an optimal outcome, private equity principal Mark Hauser recommends that investors consult with a qualified financial advisor who thoroughly understands each client’s financial goals.