Investing successfully can be a daunting task for individual investors. There are many factors that make investing today more difficult today than it was in times past, like the amount of available options and the amount of information available about those options. It seems as though each news cycle produces a new hot stock, ETF, or mutual fund to follow while discarding the old, tired ones in the same cycle.
This sort of media production makes investing for the long term seem outdated. However, long-term investing still offers potential rewards for those who can block out the volume of investment information that comes their way. This article presents possible ways to improve your ability to achieve investment success.
1. Block out the media noise. No offense to them, but media outlets are businesses first and foremost. Magazines and newspapers need circulation, and television shows need ratings. How many times have you seen articles about stocks to hold for the next 30 years? If an investment show or magazine provided such a list, you would have no need to subscribe or watch the show after you learned what stocks were on it.
Now, what if magazines and televisions shows told you that long-term trading was dead and that they offered some very good stocks each day, week, or month that you could trade? Do you think you would tune in more frequently or keep your magazine subscription? I am not saying that none of the information offered by the shows and magazines is good. I am saying that it is not suitable for those who wish to succeed at investing long term. Daily and weekly fluctuations in a security’s price should have no effect on a long-term investor’s perspective. That’s the stuff of day traders and swing traders. It is best to leave it for them.
2. Clearly lay out your long-term goals. Determine where you want to be financially and what you are trying to achieve. Let every investment decision be based on whether it will increase the likelihood of reaching your long-term objectives. Literally ask yourself, «Does this investment have the potential to move me toward my financial goal, or does it unduly jeopardize my chances?» If you cannot answer affirmatively with certainty, then, move on to the next security or make no move at all.
3. Do not chase after returns. Hot stocks come and go, but a well-designed plan that suits you can remain for the long haul. For long-term investors, slow and steady often wins the race. Stick to your very clear plan and do not deviate from it without good reason (Remember: Short-term gains are never good reasons to change your long-term plan). If you cannot resist trading for gain, set up a separate small account that has no impact on your long-term investing.
4. Be mentally prepared for market corrections and crashes along the way. The best time to prepare for critical periods in the market is when the going is easy. If you purchased ETFs and mutual funds at great values when the market and prices were soaring, would not those same offerings have great value when the entire market and prices were down? It seems counterintuitive, but downturns are frequently not the time to panic. They can often be the time to grit your teeth and catch the sale prices that you see all around you.
5. Avoid trying to time the market. What may appear to be a top or bottom could evaporate in the blink of an eye and leave you with huge losses or opportunities missed. Let’s assume, though, that you somehow caught lightning in the bottle and timed the market exactly right. Your money is now sidelined. Now, you have to be right about your re-entry point. Do you like your odds of being exactly right two times? The risk really is not worth the reward.
6. Consider working with a financial advisor who can help to keep you level-headed and steadfast to the plan during the market’s inevitable ups and downs. A professional may be able to become a buffer between you and your long-term investment account. He or she may be able to keep you off the investing ledge, so to speak, when you have emotional urges to sell everything during downturns or to go on a buying frenzy when you hear about some great offering that is blowing through new highs each day. Basically, the right advisor may keep you from blowing up your long-term account.
Let’s be clear: Being a long-term investor today seems more difficult than it was it times past. Even a casual observer would note that the current market seems to be more volatile than it used to be. Every week, news media seem to scream loudly about the next big things to invest in and about the dogs of the market to avoid or sell. It can all be maddening.
Of course, none of these steps will actually guarantee that you will succeed at achieving your financial goals. Investing in securities involves risk of loss. Investors should always perform careful examination of any investment offering.
That being said, careful planning and sticking to your planning ‘guns’ long-term may be more suitable for the individual investor. Consult a local financial professional about your specific financial needs and objectives.