A forest does not form overnight: Why you need a long-term approach to investing
There are many types of investment strategy. You can choose between active or passive investing, make a point to diversify, invest with specific goals in mind, do dollar-cost averaging, and more. Regardless of the strategy chosen, a long-term approach to investing is a definite way to help you achieve your retirement goals.
By investing with a long-term view, you have an advantage over other investors who try to time the market or do day-trades over the short-run. Here are some reasons why long-term investing is one of the smartest thing that you can do for your retirement.
Experience the magic of compounding.
“Time in market is more important than timing the market.”, said Seng Bingyang, Director of LFA.
When it comes to investing, time is your most trustworthy friend. You can take advantage of compounding and earn returns on your returns.
Reinvesting your dividends back into your investments can make a significant difference in your wealth upon retirement many years later. If you were to take a 3% dividend as profits, you can double your money every 33 years, assuming that there is no chance in dividend or stock prices. However, should you reinvest the money back into the same stock, your investment will double in a decade or less.
Be forced to stay disciplined.
Emotional management is one of the secrets to becoming a good investor. By having a long-term perspective on investing, you will not falter at market swings. It does not matter that the market went up by 10% within a few days, or if it dives down by the same amount a few days later.
With a long-term view, you are not tempted to sell or buy by these distractions. Instead, you can focus and stick with your long-term plan. This may be the overall growth outlook of particular sectors that your stocks are from, or the viability of a new business model adopted by the companies that you have purchased stocks from.
Sleep better every night.
Sleep soundly without worrying about your investments.
If your current investments are causing you to lose valuable sleep, then they are clearly not suitable for you. This can signal a need to relook at your strategy.
As a long-term investor, you can sleep worry-free at night. Since you are likely to invest in high-quality blue chip companies or firms that show good prospect, there is no need to constantly check their performance at daily intervals and panic at its progress, or lack thereof.
These companies tend to have low volatility which keep your stress levels low as well. With that, you can focus on living your life better.
Care less about trading costs.
Active traders have to factor in commission and trading costs which can go up to thousands of dollars in a few days. However, as a long-term investor, you need not worry about these as much since your position will not change as often.
Improve your chances of succeeding.
Based on historical trends, staying invested in high quality companies is likely to make you money in the long-term. Letting your winners ride and sticking with companies that have demonstrated strong growth can allow your portfolio to grow.
Your investment risk also drops since you do not try to enter and exit the market and end up missing big up days in the market.
Spend less time on investing, and more on living your life.
Asset allocation accounts for 88% of your investment’s volatility and returns, according to Vanguard. This means that proper asset allocation matters much more than stock picking and is crucial in achieving successful investment returns.
Long-term investing is easy for anyone, including budding investors. There is no need to study the different trading styles or platforms, or scrutinise the daily fluctuation in prices as you will not be actively trading.
Since you are likely to be investing in renowned firms and holding on to them for decades, you do not need to analyse the financial reports of these companies in detail as compared to a new market entrant.
Seek help if you are unsure.
Discuss about your personal goals with professional financial advisors at Life First Advisory.
When in doubt on what to invest in and how to go about doing it, seek the help of professional financial advisors such as those in Life First Advisory.
Reach out for a chat with us to discover more about your personal needs, wants, and goals so that we can work together to help you achieve them. Regardless of which life milestone you are at, Life First Advisory will be able to guide you along your journey to lead your best life possible
Here at Life First Advisory, your life comes first.