Unlock Financial Freedom: Charles Schwab's secrets to long-term investing success

Schwab is the founder of Charles Schwab Corporation and served as its sole chief executive for most of its history since its founding in the early 1970s. Schwab has been co-chair of The Charles Schwab Corporation with Chief Executive Officer Walter W. Bettinger II since July 2022

Schwab wrote a few principles for long-term investing which investors can follow to achieve superior returns. Let's look at these principles.

Schwab says investors should begin by setting aside in cash at least two to six months’ living expenses -an emergency fund that will be available in the event of illness or a period of unemployment.

Schwab says every year investors put off investing which makes accomplishing ultimate retirement goals even more difficult.

" As a rule of thumb, for every five years you wait, you may need to double your monthly investing amount to achieve the same retirement income. Social Security and pension plans alone are not enough for a comfortable retirement," he says.

Schwab says investors need to understand themselves, their emotions, their fears, and their tolerance for risk.

"Make sure you choose investments that you’re comfortable with and that are appropriate for your long term goals. For some investors, particularly those with large or complex portfolios who want ongoing investment management, the services of a fee-compensated financial advisor may be appropriate," he says.

Schwab says invest in stocks, either individually or in mutual funds, for long-term growth.

"In any given year, stocks can be more volatile than other investments, but over time, stocks have typically outperformed all other types of investments while staying ahead of inflation. Stocks should be the core of a long-term investing strategy," he says.

Schwab says patience is a virtue and investors should maintain the discipline to hold onto or add to appropriate investments through down markets as well as up markets.

Schwab says in deciding how to allocate assets investors should make sure to diversify, both among asset classes (stocks, bonds, and cash equivalents), and within each class.

"Choose an appropriate asset allocation model. Doing so can spread risk over a variety of investments and may provide more consistent and reliable outcomes. For many investors, broad-based index funds are an excellent investment strategy. Index funds are a sound, low-cost choice for a core holding designed to track the market’s performance," he says.

Schwab says bonds and cash can play an important role in an investor’s portfolio, providing solutions for income and diversification needs.

"But to achieve your long-term growth objectives, look to stocks and stock mutual funds," he says.

Schwab says over the long run, sales charges, loads, and high expenses can drag down the performance of even a well-diversified portfolio.

"Reduce your investment expenses by using no-load funds, low-cost stock and bond trading services, and tax-efficient mutual funds. For many investors, a buy and-hold strategy can minimize the impact of capital gains taxes," he says.

Schwab says investors should review their portfolio at least once a year, and certainly whenever personal circumstances change.

"You’ll need to evaluate the performance of your investments against relevant risk-adjusted benchmarks, and, when necessary, to rebalance your portfolio to stay on track with your long-term financial goals," he says.

Schwab says investing for growth shouldn’t stop when investors retire.

"To make your money work for you throughout your retirement years, keep investing a portion of your portfolio for growth. Don’t automatically shift all of your money into fixed-income and money market investments too early," he says.

(Disclaimer: This slideshow is based on various books and articles of Charles Schwab)