For many, investing in the long run is not the only way to make money. Others feel that long-term investing may not fit their temperament. We illustrate below what we think are the critical elements for a successful long-term investor.
Personal finances on track: Before investing for the long term, you need to know how much money you have to invest. Start by looking at your assets and debts, set up a reasonable debt management plan, and understand how much you need to keep an emergency fund. Tackling these financial tasks first ensures you do not need to pull money out for a while. Withdrawing funds early from long-term investments undercuts your goals and may force you to sell at a loss.
Understand investing risks: To avoid knee-jerk reactions to market dips, be sure you know the risks inherent in investing in different assets before buying them. Knowing the risks will make you sleep well while your investments go up and down. Set your goals, your time frame for achieving them, and how much risk you are willing to take as an investor.
‘Eggs’ among multiple baskets: You have always heard not to put all of your eggs in one basket. This is because none of us know precisely what the economy holds and how a single business will evolve. Diversification, spreading your assets across various investment vehicles and industries, is the strategy to hedge against losses due to market downturns, unexpected trends, and inflation.
Realistic expectations: Many long-term investment calculators are available online to help you estimate potential investment returns in five, ten, or even thirty years. These tools are not a guarantee of future success but can help you set realistic expectations and plan accordingly.
Set up an investing plan and stick with it: Staying the course and remaining consistent are vital ingredients of long-term investing. Investors risk losing out on the compounding interest, dividends, and investment gains without early and regular contributions. Resisting the urge to pause investment efforts, even amid unexpected expenses, can help investors stay on the path toward their goals.
Patience: Long-term investing is not for the impatient. The growth can sometimes be painfully slow, tempting you to explore other short-term approaches. However, building wealth over the years or even decades requires consistent saving and investing.
Expert guidance: Investors can benefit from the guidance and proposal of financial experts. They can help you set realistic goals, optimize your investment mix, take advantage of tax benefits, and know where to put your money today to grow for tomorrow.
Investing is all about focusing on your financial goals and ignoring the herd. If you think of the next 12 or 24 months, this is not investing. That would be trading, and the BFI SIP service cannot help you much with this. In the short-term market may look like a casino, but in the long term, it is more of a compounding interest machine. Invest for the long run!