History tells me that the longer I stay invested in the stock market, the more chance I have of making a consistent return. And the longer I make consistent returns, the wealthier I’m set to become. This is the hallmark of long-term Foolish investing. With this in mind, here’s three ways I’m investing inside my Stocks and Shares ISA.
Diversify, diversify, diversify
Along with patience (see below), I think diversification is the key element in my strategy to build wealth over time. That’s because I may suspect which stocks are going to perform strongly in the next couple of years, but ultimately I have no idea. And I don’t believe anyone else really does neither.
An investor may make the right call one year, then be totally wrong the next. As renowned investor Howard Marks has pointed out: “You can’t predict, but you can prepare“.
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I think continuing to build a diversified portfolio is the perfect way for me to prepare for whatever happens next. This thinking has led me recently to invest in sectors that I’ve long overlooked.
One example is the defence sector, which has attracted investor attention due to increasing defence budgets globally. I’ve added both BAE Systems and electronic warfare specialist Chemring Group to my ISA portfolio.
And I’m also giving serious attention to the UK house-building sector for the first time. This is an area that hasn’t done well recently, due to rising interest rates and falling house prices. Many house-building stocks fell between 25% and 50% last year.
Yet despite the risks associated with an economic downturn, I think there may be opportunities here. The UK suffers from a chronic undersupply of new houses, and I don’t see that changing anytime soon.
More ammunition
Another way to prepare is by having cash sitting in my ISA, just waiting. That’s because opportunities often arise out of nowhere.
Who predicted Covid would cause one of the worst stock market crashes in history — followed by one of the largest bounce-back rallies?
Luckily, I had some cash at the time and scooped up some amazing bargains when the market crashed. But I wish I’d had more capital to put to work. So, I plan to have more cash on hand in my ISA, to fully capitalise on any sudden opportunities that arise.
Patience
Ultimately, it takes time to get rich from investing in the stock market. That’s why legendary investor Warren Buffett has famously generated over 90% of his wealth since he turned 65. His investing career is a masterclass 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 delivered the following words: “Well, I think the biggest mistake is not learning the habits of saving properly early. Because saving is a habit. And then, trying to get rich quick. It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick“.
I 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. Those things I do control.
