What does the phrase “long term” mean to you? For children, long term can mean waiting for Christmas or summer vacation that feels like a million years away. For young adults, long term may reference how long it takes to pay off student loans. As we get older, we begin to understand that long term can be a really long time – even decades. We may wonder where the years went. Suddenly we’re in our 50s, 60s, 70s or older. Long term tends to be a subjective phrase depending on what stage you have reached in life and what your goals are.
When it comes to investing, its meaning is only marginally clearer. In other words, if we’re encouraged to invest for the long term, how long is that – 10 years, 20, 30? It largely depends on what your financial goals are – a house, college tuition for the kids, retirement and so on. We take the time to help clients define their financial goals and then create strategies using a variety of investment and insurance products to custom suit their needs and objectives. Give us a call so we can work with you to help you pursue your long-term goals.
It’s worth noting that even an experienced investor can’t say for sure whether they’ve got the right mix of investments for the long term. Take, for example, Jack Bogle, the founder of The Vanguard Group. He recently responded to a question he received from a young investor concerned about how potential catastrophes would impact his portfolio. Bogle replied by sharing his own portfolio mix (50/50 indexed stocks and short/intermediate bond indexes) but said that half the time he worries that he has too much in equities, and the other half that he doesn’t have enough. “We’re all just human beings operating in a fog of ignorance and relying on our common sense to establish our asset allocation,” he wrote to the investor.
The S&P 500 has nearly quadrupled in annualized returns since its low in 2009. Several prominent market analysts and investment firms suggest this means it’s about time for a market downturn. The question is, if you’re a long-term investor, do you sell in anticipation of a correction? After all, if the point is to buy low and sell high, it makes sense to take gains while prices are at their highest before they begin to drop. Or does it?
That’s not what long-term investing is about. The reason returns over 30 years tend to outperform those from, say, five years, is that time is what typically smooths out those periods of volatility. If we continue investing automatically, we may end up buying during those periods of price drops and we can potentially make stronger gains as prices rise again.
If we base our investment decisions on when the market will take a turn for the worse, we could end up missing out on the future gains that could have been made. Long-term investing may involve patience, unlike children who anxiously await the holidays.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. This information is not intended to provide investment advice.
Interested in reading more? Here are some articles that may be of interest to you:
CLICK HERE TO READ THE ARTICLE “Stocks and the meaning of 'long term.'”
CLICK HERE TO READ THE ARTICLE “An investing legend who’s nailed the bull market at every turn sees no end in sight for the 269% rally.”
CLICK HERE TO READ THE ARTICLE “‘Unnerved’: These 5 Big Wall Street Players Are Predicting a Downturn.”
CLICK HERE TO READ THE ARTICLE “Should You Invest As Usual When Stocks Are This High?”
Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.