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History tells me that the longer I stay invested in the stock market, the better chance I have of earning a consistent return. And the longer I get consistent returns, the richer I’ll become. This is the hallmark of dumb long-term investing. With this in mind, here are three ways I’m investing within my Stocks and Shares ISA.
Diversify, diversify, diversify
Along with patience (see below), I believe diversification is the key element in my strategy for building wealth over time. That’s because I can suspect which stocks are going to do well over the next two years, but ultimately I have no idea. And I don’t think anyone else does either.
An investor can make the right decision one year and then be dead wrong the next. As noted investor Howard Marks has noted: “You can’t predict, but you can prepare“.
I think continuing to build a diversified portfolio is the perfect way to prepare for what happens next. This thinking has recently led me to invest in sectors that I have overlooked for a long time.
An example is the defense sector, which has attracted the attention of investors due to the increase in defense budgets worldwide. I have added both BAE systems and electronic warfare specialist Chemring Group to my ISA wallet.
And I’m also paying a lot of attention to the UK homebuilding sector for the first time. This is an area that hasn’t fared well recently, due to rising interest rates and falling house prices. Many home construction stocks fell between 25% and 50% last year.
However, despite the risks associated with an economic downturn, I believe there may be opportunities here. The UK suffers from a chronic shortage of new homes, and I don’t see that changing any time soon.
more ammunition
Another way to prepare is to have cash in my ISA, waiting. That’s because opportunities often come out of nowhere.
Who predicted that Covid would cause one of the worst stock market crashes in history, followed by one of the biggest rallies?
Luckily I had some cash at the time and got some amazing bargains when the market crashed. But I wish I had more capital to put to work. Therefore, I plan to have more cash available in my ISA, to fully capitalize on any sudden opportunities that arise.
Patience
Ultimately, it takes time to get rich by investing in the stock market. That’s why legendary investor Warren Buffett has generated more than 90% of his wealth since he turned 65. His career as an investor is a master class in the power of compound interest.
Buffett was once asked what he thought was the biggest mistake people make when it comes to money. He uttered the following words: “Well, I think the biggest mistake is not learning saving habits properly from the start. Because saving is a habit. And then trying to get rich quick. It is quite easy to become well off slowly. But it ain’t easy to get rich quick“.
You may not be able to influence the up and down movements of the stock market. And I certainly have no control over interest rates and other macroeconomic events. But I can save and I can learn to be a patient investor. I control those things.
