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Investing for the Long Term

Posted by Michael Kane on Aug 19, 2016 1:21:59 PM
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investing-long-termImagine preparing for a long-distance trip with a meticulous plan only to suddenly change course mid-flight because you think there is a faster route or more favorable direction. 

Long flights require precise preparation and steadfast adherence to the flight plan to arrive safely at your destination. The same is true when it comes to investing for your retirement. A detailed and faithfully executed long-term financial plan designed to reach your retirement goals is the best way to dodge obstacles and avoid the pitfalls of volatile markets.

Base Investments on Goals, Not Impulses

We’ve all heard some financial professionals claim that they can “time the market,” or predict market returns with some degree of accuracy. (Believe me, they can’t!) These predictions often find their way into the media where they are breathlessly reported as the latest and greatest way to grow your assets. In this environment, it’s easy to lose sight of your initial plan and give in to short-term thinking, but that could cost tens or even hundreds of thousands of dollars and a secure retirement.

While it can be tempting to listen to friends or financial reporters talk about the “next big stock” or the hot new hedge fund they’ve just discovered, doing so can put you and your retirement savings at significant risk. This is especially true for individuals who are in or nearing retirement. By creating a plan with your advisor that includes specific goals, you can avoid risky impulses and uncertain ideas.

Don’t Sweat Fluctuations in Financial Markets

Though the stock market goes through fairly predictable cycles based on economic and other financial data, volatility or impactful events are often reported through a lens of sensationalism that has no bearing on you or your long term goals. Timing investments based on the current direction of the market is inefficient and may significantly increase the risk exposure in your portfolio. Understanding the amount of risk you are willing and able to take on is a key part of the financial plan, and a skilled advisor will complete this assessment as part of your overall retirement picture.

Long Term Investing Always Wins

With patience, long-term investing can weather any storm the market may experience. Since the inception of the S&P 500 in 1926, returns for any twenty-year period have been positive, with the lowest annualized return for that time period at 7.81%. In 1990, the S&P 500 was down 3.06%. Imagine if you had removed your money from the market to a different or more conservative investment out of fear of negative returns. In 1991, the S&P 500 was up 30.23%. A short-sighted strategy would have resulted in selling low and missing out on the positive returns the following year.

Even though it may be tempting to buy into investment fads or trends, the steadiest course for a successful retirement is a long-term plan. The fleeting direction of the market on a monthly or even annual basis becomes irrelevant to the smart long term investor.

Financial markets can experience extreme turbulence over short periods of time, but historical returns show that over the long-term, sticking to your retirement and investment goals can make for a smooth landing.

DEALING WITH VOLATILE MARKETS

Do you struggle with handling volatile markets? Download a copy of Handling Market Volatility to learn tips for dealing with the ups and downs of the market.

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Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security. 

Topics: Financial Planning