8 Ways To Pick The Best Long Term Stocks

Your money won’t grow much in the bank. A study from the Federal Deposit Insurance Corp. (FDIC) revealed that the average annual percentage yield (APY) for savings accounts is 0.33%. That low return explains why many people look into long-term stock investing.

The stock market isn’t free money, and each company has a level of risk for shareholders, but with the right strategy, you can increase the likelihood of picking investments that do more for your money than a savings account.

We're going over the key takeaways for identifying the best long-term stocks for your investing goals. 

The Importance of Long-Term Investing

A long-term approach gives investors more time to ride out volatility and avoid timing the stock market. It’s also less stressful and gives you more time to focus on increasing your monthly contribution instead of seeking higher returns and taking on riskier investments that rely on timing Wall Street.

Investors can do their best to look at metrics and generate returns, but the only thing you can control is how much you put into the stock market. This focus gives you more time to grow your portfolio with earned income and end up with a larger overall portfolio. Once you do the initial research to find great stock picks, you can buy them, monitor them from time to time and wait for the compounding to take effect.

Keep reading to learn expert advice on long-term stock investing and gain insight into top stock tips.

How to Pick Long-Term Stocks

Picking stocks for the long haul is a useful skill for people who want their money to work harder for them. Long-term stock investing can aid in your quest for a smooth retirement and help you outpace inflation.

Nevertheless, it's important to be aware of the various risks and nuances associated with long-term stock investing. Keeping these insights in mind can help you target the best stocks for your portfolio and make smarter investment decisions.

1. Invest in a Growing Industry

The only constant about the economy is change, and some industries are better positioned than others. Corporations in industries with promising growth opportunities and the potential to disrupt established companies can provide outsized returns for investors. Tech stocks and healthcare companies are typically thought by investment managers to be promising investment opportunities.

But innovative companies can also carry more risks than blue-chip companies or real estate index funds. Some investors look at industries and companies with tremendous staying power instead of trying to predict the next rising star.

2. Choose a Stock Analysis Strategy

Analyzing stocks helps investors feel more confident about their current positions and stay away from investments that do not align with their criteria. Fundamental and technical indicators can provide clues about a stock’s valuation and the likelihood of outperforming in the future.

While these indicators can be time-consuming to find on your own, some investors are turning to artificial intelligence (AI) for speedy access to the most up-to-date information.

AI investing assistance enables investors to receive metrics like a company’s price-to-earnings (P/E) ratio and 50-week moving average in seconds. Although you can always browse through online resources to find this information without an AI assistant, the technology can make a significant difference in giving you the upper hand.

Regardless of how you approach finding data, it’s important to decide which indicators you’ll look at the most. Every data point belongs to one of these types of analysis.

Fundamental Analysis

Fundamental analysis focuses on a company’s balance sheet, valuation and other fundamentals. Most investors use fundamental analysis to assess long-term investment opportunities. They focus on a company’s current status and what it can become in the future.

Technical Analysis

Technical analysis focuses on short-term price movements and is the preferred method for traders. Long-term investors can find buying points by looking for a short-term moving average that crosses over a long-term moving average, but this analysis is more popular for traders who only plan to hold onto a stock for a few days or weeks

Long-term investors may use technical analysis to determine if a stock or fund is oversold or undersold at that moment, but they use fundamental analysis first to determine whether the stock is worth adding to their investment portfolios.

3. Utilize Dollar Cost Averaging

One tried and true stock tip is dollar cost averaging. This is an investment strategy that involves investing a fixed amount into the market on a regular and consistent schedule, regardless of market conditions. An example would be committing $500 to your investment fund every month, no matter how markets are performing.

By investing a fixed amount at regular intervals dollar cost averaging can help mitigate the effects of market volatility. Dollar cost averaging removes the need to guess the best time to enter the market since deposits become largely automatic.

Similarly, this strategy also helps reduce the potential impact of emotional decision-making when investing. By sticking to a consistent schedule, investors can take a more disciplined approach that's truly in line with their investing goals. Finally, dollar cost averaging allows investors to benefit from the power of compound interest, as consistent deposits enable an investment account to grow faster over time.

4. Consider the Management Team

While a company’s balance sheet and valuation give insights into its health, the management team is an intangible factor that impacts valuations. An experienced management team can tap into more growth opportunities and take action sooner. Some people will buy or sell a company exclusively because of the CEO.

Tesla Inc. is a great example of this trend, with many early investors piling into the company because of Elon Musk’s leadership. Musk’s persona and leadership have attracted Tesla investors and kept them on board, but Tesla investors who don’t like his recent activity around Twitter have been selling shares. Both outcomes demonstrate how a CEO and management team can influence a stock’s price and public acceptance.

While most stock advisors wouldn't recommend buying a stock based on the company's management team alone, it's an important factor to consider when analyzing different stock picks.

5. Fine Tune Your Risk Tolerance

Every investment is risky, but a blue-chip dividend stock is less risky than a high-flying growth stock. Many investors diversify their portfolios to compensate for this risk. They use some of their funds to buy low-risk assets that provide stable cash flow and swing for the fences with long-term investments that carry more risk.

Before buying stocks, investors should consider their financial goals and how much risk they can tolerate. Younger investors usually buy more growth stocks because they have more time to ride the ups and downs. Older investors eying retirement tend to buy stable companies that present less risk. These investors are usually okay with a lower upside in exchange for stability.

6. Understand Your Timeframe

An investor with 40 years until retirement has more time to engage in risky investments and wait for them to yield positive returns. Older investors don’t want to rock the boat as much if retirement is five to 10 years away.

Many stock investors buy assets thinking of the potential appreciation. Stocks have a long history of going up and recovering from their setbacks. While looking at a 40-year chart will show a pattern of upward movement with some hiccups, the stock market has taken over a decade to recover from some of its crashes.

Investors need to consider the risk of assets losing value and consider how long they can wait for prices to recover. Stock picks with greater margins of safety minimize how much you can lose and help make your investment portfolio less vulnerable to market corrections.

7. Commit to the Long Haul

Long-term investing isn’t as easy as buying a stock today and holding onto it for several years. Stock prices don’t move smoothly, and sharp movements can rattle many long-term investors. When you buy a stock for the long term, you have to stay committed through the volatility. Instead of panicking when a share price enters bear market territory, long-term investors view these dips as buying opportunities. Not every company is a buying opportunity just because it’s down 10%, but reliable companies with strong demand and noteworthy moats can withstand more economic uncertainty than most corporations.

8. Look at the Bigger Picture

Key metrics reveal insights about a company’s current status and its likelihood to outperform in the future. But getting stuck on a single metric can ignore risks. Investors who only look at the P/E ratio ignore a company’s growth rates and other important fundamentals.

For example, many investors will look at a P/E ratio to identify value stocks or stocks that are perceived to be trading below their true value. Value stocks are commonly referred to as being "on-sale" and can present a great opportunity for long-term investors. However, a low P/E ratio will only signify a value stock if other metrics point in the same direction as well, such as a high dividend yield,

In other words, looking at several data points during your analysis will help you identify growth companies and make more insightful investment decisions.

Stay Keep Targeting Promising Opportunities

The stock market presents investors with the opportunity to achieve higher returns, but it is complex with many nuances. Even with the metrics, company performance and other key details, a stock’s price doesn’t always move by logic in the short term. Investors have to stay committed for the long haul instead of letting a bear market get to them.

When in doubt, using the right technology tools can make a significant difference in your investment strategy. AI assistance for investing shows the potential to be the new standard for retail investors. By utilizing modern technology, investors are in a stronger position to identify growth stocks that perform over time.

With a personalized AI stock advisor, investors can find the best stock picks for their specific asset allocation strategy and time horizon. Investment advice that is tailored to your needs is a powerful way to position your investment portfolio for gains.

Take a look at one of the top AI investment accounts to hit the market and discover how new technology could radically transform your approach to long-term stock investing.

Frequently Asked Questions

Why should you be a long-term investor in the stock market?

When you invest for the long term, you have time to ride out market downturns, so you’re less likely to be affected by short-term volatility. Long-term investments also have the potential to provide higher returns than short-term investments due to the power of compounding, which is where investments earn a return on themselves and continue to do so over time. Finally, long-term investments require less time and effort to maintain, since you won't have to constantly monitor your investments or make frequent trades.

Why do people invest in long-term stocks?

People invest in stocks in the hopes of achieving higher returns than from risk-free assets like savings accounts and treasury bills. Interest rates and capital gains on savings accounts and treasury bills oftentimes barely beat out inflation. Investing in long-term stocks can provide a great opportunity for higher returns. Nevertheless, the stock market does come with a certain amount of risk and may not be suitable for everyone.

How do professionals find stock picks?

Professionals create criteria to guide their stock investing decisions. They develop criteria based on metrics, company growth, industries and other factors. Sometimes, they may choose to work with a financial advisor or harness technology like an AI-stock advisor.