INVEST FOR THE LONG TERM

The most important principle when investing is to give yourself a long time frame, ideally forever.

“Our favourite holding period is forever.”

“An investor should act as though he had a lifetime decision card with just twenty punches on it.”

Warren Buffet

Investing for the long term is the best way to avoid losing. Develop a long term plan and stick to it. Investing during times of uncertainty can be nerve wracking, but with a long term view it’s usually the best time to buy. Equities have been the best long term performers and as your investment timeline reduces you can look to diversify into ‘safer’ investments. Long term investing will also allow for cyclical events and volatility that in time will always pass.

The value of long term investing

KEEP IT SIMPLE

I’m a huge advocate for ETF’s tracking an index. One trade to get ‘the basket’ or the top hundred or even thousand stocks in an index. The reality is most Investors and Fund Managers won’t beat the index fearing an ‘average return’ and in trying to do so, end up losing. Human error and emotions often work against the investor. Brokerage, trying to time the market, buying in and out of stocks and taxes are all traits that usually impair results over the long term. The stock market on average returns around 10% annually. There is nothing ‘average’ about that. Stick to your plan and add to your investments as much as possible. Automate deposits into your share accounts and try and increase those amounts over time. Depositing regularly into 5 to 10 ETF’s is as simple as it gets and will only take 15 minutes a week or month to look after. It’s also an easy way to diversify.

Avoid starting and stopping investments

MAKE THE MOST OUT OF COMPOUND INTEREST

One dollar invested in cash in 1900 would be worth $236 today. Bonds, $877 and Australian shares a staggering $559,281. Of course there were rough patches along the way like the GFC, but the impact of compounding at a higher long term return is huge over long periods of time. This applies to all growth related assets, so one of the best ways to build wealth is to take advantage of the power of compound interest.

Shares vs bonds & cash – very long term – Australia

TURN DOWN THE NOISE

Once you have worked out your strategy, turn down the noise and stay focused. In the digital world today there is an opinion or a dooms day prediction everywhere you look. “Bad news” sells, so try not to listen to the everyday chatter, there is always something going on. Stick to what you know and only sell for a good reason. eg. valuation, re-balancing etc. The same thing can be said about following the crowd. Stay optimistic (we know that the market goes up more than it goes down) and stay the course!

IN SUMMARY

  • ACT ON INSIGHT NOT, NOT INSTINCT – Instincts might tell you to sell in times of stress, but you could miss valuable opportunities.
  • PLAN FOR THE FUTURE – Stick to a long term strategy and stay invested.
  • DIVERSIFY TO MANAGE RISK – Stay invested across traditional and alternative assets in accordance with your risk profile.
  • INVEST WITH DISCIPLINE – Invest fixed sums at regular intervals.

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This is not investment advice. Follow this information at your own risk and if unsure seek the help of a professional Financial Adviser.