Long term investing is a simple strategy that lets you make money over the long term. The only thing you need to do to take advantage of this is to buy stocks in strong companies and hold onto them for as long as you can.

There are a lot of advantages to doing this. Below are just a few of these advantages.

1. This is backed by History

Over the short term there is no guarantee in what will happen in the market. Stocks go up and stocks go down, that is just how it works. However, over the long term stocks tend to be a lot more consistent than that. In fact over the long term stocks tend to slowly make their way higher.

Over time this slowly but surely investment style can actually add up pretty nicely.

2. Low Maintenance

Another benefit of long term investing is that there really isn’t a lot of maintenance required in order to make money with it. The only thing you really need to do is to buy a few stocks that you think will go up over the long term and then hold onto them over the long term. You don’t have to worry about when to sell or when to cut your losses short. Instead just find companies that will most likely be around 20 or 30 years from now and hang onto them.

3. Dividends

A third advantage of long term investing is in the dividends that they produce. Some stocks will pay out a monthly or quarterly income for their investors. While this may not be a large amount it can add up over time and as you invest more and more money. If you are able to save up and invest enough money then this can actually turn into a pretty large passive income stream because of the dividends.

Stock markets are the most risky way to make money. However, that said they are easily most easily available methods to make money and they provide gains which are far in excess of any other money making methods.

You start by selecting a full service broker or a discount broker or you can also start with the alternative method which is the mutual funds

To avoid the risks in the stock market you need to make sure that you have the best of the trading strategies understood and always invest in stock market for long term. Short term trading generally has a very low success rate.

Pick stocks from the defensive sectors as that will help you make good money without the attendant risks.

Losses and gains is part of the game but be careful initially about the kind of stocks that you invest in.

For long term defensive stocks there is no need to monitor them and you can very easily make sure that you have them with you all the time.

To avoid losses all have a fallback strategy so that you can have some money with you in the event the market falls and you can pick up some stocks at a discount to their actual value.

Before entering the market make sure that you know what is your risk profile and this risk profile will come in handy while taking any risk in stock market.

Stock markets are the most risky way to make money. However, that said they are easily most easily available methods to make money and they provide gains which are far in excess of any other money making methods.

There are a couple of methods by which you can invest in shares. Opening an account with a share broker is the first method and the second method is to invest in mutual funds of a reputed company. These mutual fund companies hire managers to invest the money by judicially picking up stocks in a lot of companies and then they monitor these stocks on a daily basis and exit these companies at any sign of trouble.

To avoid the risks in the stock market you need to make sure that you have the best of the trading strategies understood and always invest in stock market for long term. Short term trading generally has a very low success rate.

Pick stocks from the defensive sectors as that will help you make good money without the attendant risks.

The most risky stocks are those which can give you gain instantly but the issue with them is that you need to monitor those very closely so that you can exit the stocks as and when you have made your desired percentage of gains.

If you have time to monitor the stocks only then invest in short term stocks else go for the long term stocks.

Have a cushion for losses otherwise you can be caught off guard and there will be no money left for you to cherry pick stocks. Buy when everyone is selling and sell when everyone is buying is the mantra that you should follow and that will help you make a lot of money.

Before entering the market make sure that you know what is your risk profile and this risk profile will come in handy while taking any risk in stock market.

Most options traders view stock options as only a short term trading strategy. This is because the idea of a highly leveraged tool with the potential to make big bucks quickly appeals to the risk taker inside all of us. Just like a card counting black-jack player, options strategies can be used to make significant short term profits, provided the player is careful, and knows what they’re doing. But while options are usually employed solely by that group of high-risk, high-reward traders, they actually have enormous benefits that tend to go unnoticed by many a long term investor.

The stock option strategy I’m about to unveil isnt often used. In fact, I’ve only briefly heard mention of them on obscure websites, and even then, not in enough detail to give an example. So here it is, what I believe may be the biggest secret kept from long term investors on main street. The stock option strategy for the long term investor.

The strategy is a vertical option spread, using leap options. How this technique works is you buy one option, while simultaneously selling another option for the same month, but at a different strike price. While XYZ is often my generic ticker, I will use a real stock in this case. Keep in mind, this is NOT a recommendation. In fact, it would probably be a bad idea to invest in the example I’m about to give. Its just an example. Yet to get realistic prices for this strategy, it may be helpful to use a actual corporation.

note:I wrote this part of the article about a short time ago, prices may not be 100% current. at the moment GE is currently at 10.41 per share. In this case, let us talk the January 2011 options, giving GE plenty of time to go the direction we believe it will. So if you thought GE was a superb long term buy, it would be reasonable to believe it’s going to at least $20 per share by that point. By January 2011, consensus is believe the recession to be over, and that single development alone should lead to a substantially higher stock price.

To do a vertical spread, you have to buy one option, and sell another one. With our price target of around $20, and with the current price, 10.41, I would buy the 12.50 strike call option, and sell the 17.50 strike call option. The 12.50 option can be bought for 2.71 at the moment, while the 17.50 can be sold for 1.40, giving us an total cost of 1.31 per share for the vertical spread.

Now lets analyze this trade for a second. If GE is trading under 12.50 on the January 2011 expiration, both options expire worthless, and the 1.31 per option spread invested is gone. On the other hand, if General Electric is trading above 17.50, then the 12.50 option will be worth exactly $5.00 more then the 17.50 option, and so the position has a value of $5.00 per share. If its between 12.50 and 17.50, the call we sold expires worthless, while the call we bought will have value equal to the difference between the stock price and the strike price; 12.50 in this case. How do you calculate the break even? Well we paid 1.31 for the option spread, so if its exactly 1.31 higher then 12.50 (13.81), then well be at break even if the stock is at that point.

That gives us an amazing return of 281% if GE is above 17.50, for an annualized return of 107% (holding period is 22 months). Because of the high potential for risk - a complete loss of investment if GE is below 12.50 in Jan 2011, you shouldn’t put more then you’re willing to risk in the trade. Definitely a high risk, high reward play. Yet with how much time there is, it is a much safer bet then short term options, and significantly more profitable then just buying the shares.

So now that the basic idea is covered, what are some examples of vertical spreads I would consider? I’m a strong believer in investing in emerging markets, so I am long term bullish on EEM (IShares MSCI Emerging Markets Investment Index). The January 2011 25-30 vertical on EEM is only going for about $1.88 at the moment, with EEM trading at 25.30 so I think that would be an excellent investment. Above 30 it would be worth $5 at expiration, while below 25 it would be worthless. Unless the economy further deteriorates, I can not imagine that occurring.

Similarly, I expect FXI (iShares FTSE/Xinhua China 25 Index) to go up. The “China miracle” isn’t over, merely in a subdued state due to temporarily reduced demand. The 30-35 vertical Jan 11 vertical would be worth $5 at expiration if FXI is above 35, which from its current price of 28.51, isn’t much of a stretch. That vertical spread currently has a $2 price, so that would be an even 150% return from now until January 2011.

A significantly more controversial play would be Bank of America. While the trader in me screams to short the stock, I foresee it being far more valuable then it currently is a couple years down the road. The simple reason is that yes; financial stocks have been hammered by the current collapse. Yes, some banking companies have went bankrupt, or have been on the verge of bankruptcy. Is the financial system going to completely collapse? No. Are rampant bank runs going to drive them out of business? No. Are banks going to be lending and making money again after this recession ends? YES! Is pent up demand in housing going to cause a rush to buy houses at prices not seen in a decade? YES! Are banks going to profit from this? Most DEFINITELY. If BAC is above $10 at the January 2011 expiration, the 7.50-10 vertical for Jan 2011 would be worth 2.50, while only costing about $0.65. That would give a 286% return, or 108% annualized. The risk of course, is that BAC goes bankrupt, or BAC flounders under the $7.50 per share mark past January 2011. In either case, you would lose your investment. Yet with prices as low as they are now, that isn’t very likely.

For many people, the financial markets are not the place to make a quick buck. While some short term traders will have great success with these option strategies, long term investors can use these same strategies while remaining focused on the longer term, to achieve gains vastly exceeding those of the regular stock market, while limiting risk.

For many years, investors have attempted to diversify their overall portfolios by trying to pick stocks across a diverse set of asset classes. Which is all well and good, but the problem it generally runs into is you should also be diversified within any given asset class, lest something adverse happen to the company you happened to bet on. Yet as soon as your diversifying both within, and between asset classes, now your running a portfolio of potentially 40+ equities, and even the active investor rarely has time to do due diligence on the hundreds of companies required to find 40 excellent investments.

ETF. The latest all important acronym to add to your vocabulary. ETF stands for exchange traded fund; a relatively recent innovation that allows investors to directly target sectors for investment, instead of picking individual stocks, and praying those stocks wont underperform their sector. ETFs are similar to mutual funds, with a couple important differences. They can be bought and sold like a stock, no minimum investment or redemption fees, and you can short them.

The purpose of an ETF is to allow an investor to purchase a single equity that represents an investment in a sector. So if an investor is interested in buying financial stocks, they could buy XLF. If they want some small cap goodies, they can choose to buy IWM. For some exposure to the Chinese stock market, they could invest in FXI. Finally, if they simply want to emulate the returns of the S&P 500 index, the SPY has them covered.

But why shun the mutual fund? Why take the new guy over the established king? Lets start with the tax advantage. When mutual funds endure large sell offs, they have to liquidate many positions, some of which are currently at a gain. They then have to pay capital gains on those positions, and this negatively impacts their return. It would be an understatement to say that Mutual funds generally have higher expense ratios in general compared to ETFs. It can sometimes cost as little as 8 dollars to get into an ETF whereas a mutual fund of 20,000 that grows to 60,000 over a 20 year period may have conservatively lost as much as 18,000 to its competent managers.

Of course, the vast convenience ETFs have over mutual funds shouldn’t be underestimated. ETFs can be traded just like a stock, giving active traders the ability to buy and sell intraday. The ability to short was impossible with a mutual fund, but now it can be done. During any bear market, the ability to benefit from the fall of sectors as well as their rise is a valuable one to have.

Another important consideration is that most of the more liquid ETFs are optionable. This means that option-savvy investors can harness the power of stock options to change the risk-reward profile of their positions, and risk-conscious investors can use stratagems such as the covered call and protective put to protect their investment.

There are some disadvantages to ETFs as well. Some ETFs have complex structures that can lead them to deviate from what they are supposed to be tracking. A similar instrument, ETNs, can also easily be mistaken for an ETF, leading to some general confusion about what exactly you are investing in. Yet for those willing to put in the work to learn, ETFs can be a highly profitable venture for the modern day portfolio.

ETFs are a diverse tool that allows one to remove risk from ones portfolio by investing in sectors instead of individual companies. They allow investors to benefit from downturns in markets as well as the uptrends. And they allow the investor to take advantage of options on sectors, which options-savvy investors can use to supercharge returns. Given their great variety of uses, ETFs should be a valued part of any investors portfolio, to be ignored at the investors peril.