Best Investment Advice: Tips for Building Long-Term Wealth

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Sound investment advice is always of value, but it’s particularly compelling when times are uncertain, such as in 2025. After two years of 20%-plus returns, the S&P 500 has sharply corrected in early 2025, as the Trump Administration has made erratic pronouncements regarding its tariff policy and introduced a high level of uncertainty to the markets. While the S&P 500 has always recovered from previous bear markets and gone on to make new highs, that’s little consolation for investors, who may not have factored in a deep selloff to their investment plans.

At times like these, it’s important to go back to basics and understand that, while unsettling, corrections are a normal part of how markets function. By creating, maintaining and sticking to an investment plan, investors can weather these tempestuous times and continue to achieve their financial goals.

This primer to building long-term wealth is designed for beginners, long-term investors, or those rethinking their strategy.

Read: How To Build Wealth With Just $100 a Month in Investments

Start With Clear Financial Goals

Just like you can’t drive cross-country without a road map — even if it’s in the form of GPS — you can’t reach your financial goals without making a plan. If you put the cart before the horse and pick your investments before you decide where you want to go, you’re not likely to achieve your financial objectives.

Start by delineating your short, intermediate, and long-term goals, and align them with milestones in your life.

For example, most financial advisors recommend building a solid emergency fund before tackling other financial goals. This is a short-term goal.

Once you’ve taken that important first step, you can plan for your intermediate- and long-term goals.

If you’re planning on buying a home, for example, that could be a short- to intermediate-term goal. Building an educational fund for your children is generally an intermediate- to long-term goal, while saving for retirement is typically classified as a long-term goal.

Understand the Basic Investment Types

Although there are a wide range of investment types, these are the fundamental ones that every investor should be aware of:

• Stocks: Stocks represent ownership in a company; while they carry higher risk, they offer higher potential returns.
• Bonds: Bonds are essentially loans to governments or companies. In return for your capital, a bond issuer will promise regular interest payments and the return of your principal at some future rate. Bonds come in many flavors, but they generally carry lower risk and offer predictable returns if you hold them to maturity.
• Mutual Funds & ETFs: The investments are diversified collections of assets. They can be ideal for beginners as a way to diversify their portfolios in a single investment.
• Real Estate: Some investors favor tangible investments that they can see and touch, rather than financial assets like stocks that only exist as electronic entries. Real estate offers the potential for rental income and capital appreciation.
• High-Yield Savings/CDs: These are safe options for short-term savings or low-risk needs. They offer the security of insurance and capital preservation.

Follow These Core Investment Principles

Investing doesn’t have to be complicated. In fact, by keeping things simple, you’re more likely to avoid making major investment mistakes. Here are the core investment principles that all investors need to understand:

• Diversify Your Portfolio: Spread risk across asset classes and industries to avoid big losses or fluctuations in value.
• Invest for the Long Term: Time in the market beats timing the market.
• Reinvest Dividends: You can generate compound growth by automatically reinvesting your dividends.
• Keep Fees Low: When possible, choose low-cost index funds and ETFs so that fees don’t eat away at your profits.
• Avoid Emotional Decisions: Always stick to your plan, particularly in volatile markets.

Advice on Investment Based on Risk Tolerance

Your financial objectives and risk tolerance are the cornerstones of your investment strategy. Here’s a comparison of the best investment types based on each risk level and financial strategy.

Mistakes To Avoid When Investing

One of the most important reasons to develop an investment road map is to help you avoid the most common investment mistakes, such as the following:

Trying To Time the Market

As much as every investor likes to believe that they are an expert, the bottom line is that the vast majority of day traders — or those trying to time the market — lose money. To time the market successfully, it’s not just enough to take profits when markets are ebullient and it seems like they will never go down — you also have to buy back in when the market looks terrible and feels like it’s going to go down to zero. Both are highly emotional moments that are almost impossible to time correctly.

Neglecting Emergency Savings

An emergency fund is the bedrock of any investment plan. Without emergency funds, the slightest financial hiccup can drive you into debt, which is ruinous to a financial plan. Invest only after securing your financial foundation.

Ignoring Taxes

Investment returns aren’t only about what you make — they’re about what you keep. Understanding the difference between short- and long-term capital gains is key, as long-term capital gains enjoy a special tax rate of as low as 0%, while short-term capital gains are taxed as ordinary income. This means you might lose as much as half of what you earn on a short-term capital gain, when you factor in federal, state and local income taxes in high-tax areas.

Income investments, such as bonds, are usually fully taxable. This means you’ll pay your ordinary income tax rate on all that you earn. This is critical to understand when factoring in your real return on income investments.

Tax-advantaged accounts, like IRAs and 401(k) plans, are a great way to defer those taxes until you withdraw the money in retirement. With a Roth IRA, you can even withdraw all of your gains tax-free if you meet certain requirements. Understanding all of these tax issues can help you be a better long-term investor.

Overconcentration in One Stock or Sector

If you put all your eggs in one basket, you’re adopting a boom-or-bust mentality with your investments — and that’s not good long-term planning. If you pick the wrong investment, you’re risking everything, and that’s certainly no way to sleep peacefully. Remember that taking a loss of 50% on your portfolio means that you’ll need to earn 100% just to break even.

Chasing Hype or Trends

Beware of chasing the latest market fad. While it may seem like big money is being made in the “flavor of the month,” be it meme stocks, cryptocurrency, or whatever’s being touted on online message boards, part of your job as an investor is to filter out the noise and stick with what you know, as delineated on your investment plan.

Investment Advice for Different Life Stages

When devising your investment plan, it’s important to understand the role that your age plays. While you may feel like the same investor at every age, the mathematics of your financial plan change as you get older. Here’s how.

In Your 20s

This it the time to start early, get used to saving and investing and being your lifelong journey of compounding your returns. By focusing on growth at this young age, you can let math to most of the heavy lifting — remember, investing just $100 per month at age 20 can potentially make you a millionaire by age 65, if you achieve a 10% annual return. If you wait until you are 40, however, you’ll have to sock away closer to $750 monthly.

In Your 30s and 40s

This is the time to increase contributions, as you’re likely earning much more than you were in your 20s. It’s also a good time to start planning for major life expenses, such as buying a home, sending kids to college, retiring, and funding long-term care.

In Your 50s

As you hit your 50s, you’ll likely be in your peak earning years, making it a great time to sock away as much money as possible. You should also take advantage of catch-up contributions, which allow you to put an additional $1,000 per year into your IRA and a whopping $7,500 extra into your 401(k).

Approaching Retirement

As you approach retirement, you’ll want to shift toward preserving capital while continuing to grow your account balances. Reduce your risk and consider focusing on income and capital protection so that you don’t tank your portfolio right when you’re about to start drawing from it.

When To Work With a Financial Advisor

Working with a financial advisor can sometimes benefit both beginning and experienced investors. Although hiring a professional will involve fees and expenses, the benefits can often outweigh the costs.

For some investors, this simply means receiving guidance regarding their portfolios. But others can benefit from advice during complex financial situations, such as if you want to exercise employee stock options, leave money to your heirs, buy an apartment complex or create a family office. These are just some scenarios in which a financial advisor may help.

However, if you’re just starting out and looking to get involved in the market, a low-cost robo-advisor may make more sense than a full-service financial advisor. Robo-advisors use artificial intelligence to match investors with a portfolio of ETFs based on their investment objectives and risk tolerance, generally for a fee of 0.25% of assets per year or less.

If you are curious about working with a full-service financial advisor, however, be sure to ask questions about their experience, investment philosophy and fees before you hire them. If you aren’t comfortable with the answers, look for another one.

Investing success comes from patience, education, and consistency. The best investment advice is to start now, stay diversified, and keep learning. Remember to focus on your goals, not short-term market noise, and always return to your investment plan if you’re feeling queasy about how the market is doing. You may find out that temporary market downdrafts are actually an opportunity to help meet your long-term investment goals.

Share This Article: