Investing in the S&P/ASX 200 Index (ASX: XJO) for the long term has paid off for the majority of investors.
Warren Buffett once said that his "favourite holding period is forever"
Ken Fisher, another very successful investor, is also attributed to saying that "it's time in the market not timing the market"
These phrases have been repeated by many professional investors over the years to tout the results of long-term investing and warn against panic selling or striving for short-term gains.
While it's true that the ASX 200 Index has risen more than 50% in 5 years, those who adopted subtle tweaks to a 'set and forget' strategy may be sitting in a much better position today.
Here are three low-risk strategies that can be employed to prepare for the next market downturn to potentially boost returns well above the market average.
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Keep an eye on valuation
The ASX 200 recently topped 9,000 points, and currently sits not far off its all-time high.
Experts continue to warn that several ASX 200 stocks are overvalued.
Recently, The Motley Fool's Bronyn Allen reported that Jed Richards from Shaw and Partners put sell ratings on two ASX shares, citing valuation.
The two stocks named were Harvey Norman Ltd (ASX: HVN) and Coles Group Ltd (ASX: COL). For the year to date, Harvey Norman shares are up more than 50%, while Coles shares are up more than 20%.
Investors should take this opportunity to trim their holdings in overvalued stocks and build a cash pile ready to deploy to more attractive opportunities.
Prioritise regular contributions
Another ingredient of successful investing is the ability to continue investing, regardless of market conditions.
Dollar cost averaging is an investment strategy that supports investing a set amount every month, regardless of whether the market is up or down. This removes psychological barriers that may stop investors from continuing to build their portfolio.
However, another option is to continue depositing a set amount of money into your investment account each month, but consider valuation before investing it.
For example, only investing half of the monthly deposit if the ASX 200 or an individual company is trading below its historical average price-to-earnings ratio.
An advantage of this strategy is that surplus cash will be available to invest when the market falls and ASX 200 shares are suddenly much more attractively valued.
Maintain a watchlist
Finally, a crucial step towards taking advantage of undervalued opportunities is maintaining a watchlist.
Just because you're fully allocated across 15-25 ASX 200 stocks doesn't mean you should stop looking for new and better opportunities.
The share market can be unpredictable, and you never know when you might decide to suddenly exit a position or find yourself with spare cash. Maintaining a shortlist of companies you know and love allows you to act quickly should their valuation become attractive.
