Five Portfolio Investment Rules to Consider for Long-Term Investing

Looking for a few rules to help you plan your long-term investing? Here are five guidelines to help you keep your long-term portfolio aligned with your objectives. Short-term & long-term rules for portfolio investments.
4 min read
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Key Takeaways

  • Many long-term investment approaches are built on straightforward yet robust investing rules and principles
  • Understanding these basic investment rules can help you put short-term and long-term market dynamics into perspective

  • Balancing short-term flexibility and long-term conviction in your investing approach can be tricky, but it’s a skill that might potentially benefit investors

If you’re looking to continually improve your market knowledge and experience, then school’s always in session. Rain or shine, every market day presents us with a little something that we can learn and add to our storehouse of market wisdom.

With that said, no matter how sophisticated your financial knowledge, it always helps to revisit a few of the bedrock basics that support the rest of your investment knowledge.

There are many different rules out there, each geared toward different investment styles and goals. If you’re setting your sights on the far horizon, here are five ideas to consider that may help you along the path toward your long-term investment goals.

1. Know What You Plan to Build Before Choosing Your Tools

Create a Plan

Are you investing to buy a house in a couple of years, or are you investing for a retirement that seems eons away? Are you investing to achieve or maintain a certain retirement lifestyle for yourself and your spouse, or are you looking to build a sizable legacy for your kids?

Whatever your financial goals may be—and you may have several—it helps to know exactly what you’re trying to build before you start rummaging through your financial toolshed. Some goals may be pursued with conservative strategies or products (such as fixed income assets), while others may not be achievable with conservative strategies, and pursuing the goal might only be realistic with a more aggressive approach (like small-cap or emerging-market stocks). You have a diverse set of tools and strategies to work with. Before you learn to use them, make sure you’re choosing the right ones.

2. Know Your “Uncle Point”

Cry Uncle Point

You’ve heard the term “risk tolerance.” There’s a point beyond which market volatility may cause you to bail out of your investment (that is, cry uncle). Perhaps your risk exposure was too large, or maybe your investment rationale wasn’t very good to begin with. Whatever the case may be, it helps if your risk tolerance limit is based on an objective measure rather than an emotional response. If you don’t know your risk limits, then how will you know if you’re taking on too much risk or not enough?

Let’s look at a recent example. When the markets crashed in March 2020 amid the onset of the COVID-19 pandemic, many investors sold a large portion (or all) of their equity holdings in a massive bout of panic selling. But the market rebounded sharply over the next two months, and many who unloaded their portfolios probably missed out on the rebound. In contrast, those who managed their risk levels might have had the opportunity to rebalance or add to their portfolios when asset values were approaching discount levels.

Gauging your personal risk tolerance might help you stay on top of market opportunities, rather than allowing the market to roll over and “flatten” your portfolio.

3. Keep Your Money Prospects Mixed and Balanced


We’ve heard it countless times before: diversify, diversify, diversify! It’s like a looping mantra in investing circles. There is some truth to it, to say the least. When a stock undergoes a major decline, it can be for a good reason (maybe it’s overvalued but otherwise solid) or a bad reason (the company is a sinking ship). The same principle can be scaled up and applied to industries, sectors, and whole asset classes (stocks, bonds, commodities, etc.).

We all know it’s prudent not to place “all your eggs in one basket,” as the saying goes. So, many investors diversify to spread their risk across a broader range of instruments and markets. This exposes a portfolio to a wider range of potential return sources. And if a segment of your portfolio is underperforming, then hopefully other segments of your portfolio are faring better. Ideally, a diversified portfolio can give you a wide range of growth opportunities with something of a built-in hedge. That’s the long-term goal behind diversification.

4. Be Agile for the Near Term but Anchored for the Long Haul

Near Term vs Long Haul

There’s no investment approach, strategy, or principle that’s so solid or robust that it can’t or shouldn’t be questioned from time to time. Markets and economies are dynamic. Every now and then, you’ll need to consider making adjustments and tweaks to your portfolio strategy.

Know when and how to question your own investing ideas and beliefs. This doesn’t mean you have to be overly fickle, changing your long-term investment strategy too hastily or too often. But it also doesn’t mean you have to remain stubborn, sticking to an investment strategy that’s clearly not working out. It’s hard to find the right balance between long-term conviction and short-term flexibility. But questioning your investment assumptions, ideas, and strategies can help you better understand what you’re doing, how you’re doing it, and what else you can do to improve your portfolio.

5. Avoid Dancing to the Rhythms of Intraday Volatility

Intraday Volatility

If your investment time horizon is decades away, more or less, then whatever happens in the market today, this week, in the next few months, or even in the coming years may not significantly impact your long-term investment returns in a negative way. Of course, if the market retreats for an extended period, dollar-cost averaging or rebalancing might help when the market eventually gathers enough steam to advance.

In the early part of 2020, intraday market volatility rose to unprecedented levels. That kind of price action can be enough to frighten any investor. But if you’re setting your sights several years or decades down the road, what happens today shouldn’t matter to you all that much.

To put things into perspective, the longest bear market in U.S. history (according to FactSet data) lasted for three years, from 1946 to 1949. The average bear market from the 1940s to the present lasted around 14 months. Historically, in contrast, bull markets have lasted longer and risen higher than any bear market has lasted or fallen. This doesn’t guarantee that future bulls or bears will stay within these averages, but it does put the matter of market fluctuations into perspective.

Markets rise and fall, economies expand and recede, and intraday swings shoot up and crash down. If your financial goal is years or decades away, what happens in the market at this very moment shouldn’t cause you to sell or buy on impulse (the classic fear-and-greed scenario). In short, don’t let short-term volatility sway you into action. Cooler heads often prevail.

The Bottom Line

Bottom Line

To sum it all up: Know what you’re investing for, know the limits of your financial comfort zone, spread your financial prospects into different baskets, question your investment ideas and approaches every now and then, and don’t let fluctuations distract you from your long-term investing goals.


Key Takeaways

  • Many long-term investment approaches are built on straightforward yet robust investing rules and principles
  • Understanding these basic investment rules can help you put short-term and long-term market dynamics into perspective

  • Balancing short-term flexibility and long-term conviction in your investing approach can be tricky, but it’s a skill that might potentially benefit investors

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