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How to maximise your chances of long-term success in the sharemarket

There’s no free lunch in investing. If you want to get rich quick, you’re going to have to take a lot of risks. And the chance of those risks paying off is tiny.

However, there’s a number of things you can do which will massively increase the odds of retiring very wealthy from shares. Here they are…

Invest regularly

The market can go up, down and sideways for extended periods of time. By saving and buying shares regularly, your purchase prices will average out – your dollars will buy more shares when the market is lower, and less when the market is higher. This allows you to avoid anxiety and ignore the market-timing gurus who, in all honesty, have no idea what tomorrow will bring.

Diversify

Single companies can go broke. Their business models can be disrupted and you can lose most, if not all of your investment. That’s why it makes sense to spread your money around. If you own a portfolio of 30 companies or more from a variety of industries, one or two may suffer, but the average return is what matters.

Consider the core & satellite approach

A popular option is to invest most of your money into a low-fee Aussie index fund or diversified listed investment company (LIC). In these funds, your money will be spread across a wide group of companies, from giants like CSL Limited (ASX: CSL) and BHP Billiton Limited (ASX: BHP) to smaller companies like BWX Ltd  (ASX: BWX) and Nick Scali Limited (ASX: NCK).

Then with a smaller percentage, you can try your hand at stock-picking. Reading about businesses and making decisions based on what companies appeal to you.

The beauty of this approach is, you get to learn and have fun by choosing specific companies yourself, while the bulk of your money gets safely tucked away in diversified investments for the long term.

Think long term

We don’t know when, but at some point, the sharemarket will go through another scary patch. Share prices will be down somewhere in the region of 30%-60%.

We’ll feel like the world is ending and it’s the worst time to invest. In reality, the scariest time is likely to be the most profitable time to invest, when looking back. Consider purchasing at the scariest time during the GFC. You would have been labelled mad for investing, but looking back it’s about the smartest thing you could have done. Keep this in mind for the next downturn.

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Motley Fool contributor Dave Gow owns shares of BWX Limited. The Motley Fool Australia owns shares of and has recommended BWX Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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