Long-Term Investing Truths
Many investors hold false ideas about investing strategies, like magic formulas that promise high returns or conspiracy theories about stock manipulations. However, there are things true about investing that many people don’t know or follow. Here are some long-term investing strategies that all investors should follow.
Long-Term Investing Is Safe
Investing in the stock market has historically been very safe. Equity markets have existed for over 230 years, and there has never been a 20-year period when they have shown a negative rate of return. In fact, there have only been two periods when stocks underperformed bonds for 30 years. However, the markets have delivered frequent negative returns for shorter periods; this is why you should always invest for the long term.
Pick an Investment Strategy
Choose what type of investment strategy you’re adopting before starting a portfolio. This includes knowing your risk toleration. Decide what percentage of decline you can accept in a given year. While you should expect the value of your portfolio to increase over time, fluctuations do happen, and there will be periods where your investments lose value. Also, invest with specific goals in mind. Knowing the purpose of your investments helps determine major decisions.
Know Your Limitations
A good investor understands that investing is not a do-it-yourself activity. Retaining the services of a quality investment manager helps you separate yourself from the emotional impact of shifts in the value of your investments. Adopting an evidence and rules-based system with simple standards is more important than portfolio construction.
Have Reasonable Expectations
You will not get rich in the stock market. Putting your savings at risk of market price fluctuations is a dangerous practice. Investing is an excellent way to protect your assets from inflation and guarantee long-term appreciation, but trying to turn modest means into great riches is a myth.
Diversifying Is More Valuable Than Predicting
It’s impossible to predict precisely which company, industry, or asset class will outperform the market average. Trying to chase trends and previous earnings leads to poor decisions and minimal gains. A diversified portfolio helps protect against market fluctuations. Remember that over time, shares in small companies outperform shares in large ones. However, they also fluctuate more in value and present greater risk. Your risk tolerance helps determine how much small company stock to have in your portfolio.
Timing in the Market Matters More Than Timing the Market
The longer you invest in the stock market, the less likely you are to lose money. Trying to use market timing as an investment strategy means you risk missing out when the stock market experiences an increase.
Low Turnover and Opportunity Costs Matter
Investment fees and expenses add up very quickly. Saving one or two percent fees has a considerable impact on the value of your portfolio over 30 years. This is why it’s important to have low turnover in your portfolio. Limiting how frequently you buy and sell shares lowers your transaction costs. Avoid micromanaging your portfolio. Every stock purchase carries a price, and these costs can easily outweigh any gains from time-hopping.
Opportunity costs impact your long-term investing success too. Expenses and other lost funds count for more than their face value because they also affect what you could’ve earned if they had not been lost in the first place.
Don’t Panic Over Downturns
Government intervention affects the economy more than your long-term investments. This is also true for major economic events, such as recessions. Economic downturns affect your portfolio’s short-term values, but unnecessary panic affects it even more. Keeping your focus on the long-term helps prevent you from making emotion-based decisions when the market declines.
Focus on Inflation
Inflation matters even when it’s low. The rate is never zero, which means your investment income needs to grow to balance the loss in the value of money over the period you’re investing to cover.
Worry About Returns Later
The sequence of returns isn’t important while your assets accumulate value, but they become critical when you reach the distribution phase. A short-term dip in value when you are receiving distributions from your investments can significantly impact your lifestyle. This puts increased pressure on your account balances and may require additional strategies to offset losses. There’s less need to focus on short-term losses while accumulating wealth, however.
Start Investing Now if You Aren’t
The best time to start investing was 20 years ago; the second-best time is right now. Keeping your investments aligned with your long-term strategy, risk tolerance, and goals helps you become financially successful.
These truths lie at the heart of a disciplined investing system that guides your financial future. These rules aren’t intended to avoid short-term losses, but they will help you invest for the right reasons. Safeguarding your assets against inflation provides you with an income whenever you need it and helps you achieve some long-term financial security.
Let Summit Wealth Partners Help Guide Your Long-Term Investing Strategy
We live in a world of information overload, and it’s critical to have a trusted advisor who can help guide you through the growing complexities of long-term investing. Summit Wealth is dedicated to helping our clients and their families live confidently and free from money worries. We combine our experience, services, and innovative approach to deliver a personalized wealth management experience that helps you succeed financially. Our types of investment strategies include:
- Investment management
- Wealth planning
- Tax optimization
- Risk management
Our broad diversification and planned rebalancing practices give you the best opportunity to achieve higher returns at your ideal risk level. Our financial planning services are client-centered and give you the ability to have ownership over your long-term investing future. Contact Summit Wealth Partners to start your financial journey today.