History has proven that no matter what your income may be, long-term investing, if done properly, is the safest method to building and protecting your wealth. With 2020 proving to be so unpredictable, long-term investing is a higher priority than ever.
A clear investment path is vital for success. Making the wrong investment decisions early on in your long-term investment strategy could either damage your financial health or set you back a few years of great returns.
Whether you are managing your own long-term investments or working with an advisor, it is important to understand how long-term investing works.
1. WRITE YOUR GOALS DOWN
Few goals unwritten are actually accomplished. Many of us fail to realize how important it is to have financial goals that we write down, focus on, and revisit on a regular basis. You can’t start working on your investment strategy without clearly defined written goals with a timeline.
2. INVEST EARLY
The sooner you start investing the more time you have to take advantage of opportunities, dividends and the beauty of compound interest. Picture this! If you were to contributes $1,000 to an RRSP from the age of 20 to 35 (assuming 7% annualized return) and then stop investing, you will have more than double than if you were to start investing at 35 years old until you retire at 65. A total of $96, 828 more.
3. COMMIT TO HOLDING YOUR INVESTMENTS LONGER
Your best defense to the unavoidable market volatility is holding your investments for the long-haul. Often you can protect yourself from inflation with long-term holds and you have tax advantages on capital gains
4. AUTOMATICALLY INVEST MONTHLY
During your working years, put some money aside monthly for investing. As your income increases, increase your investments. All of this should be outlined in your financial plan giving you a good idea as to how simply increasing your contribution to registered or non-registered accounts can exponentially improve your long-term profits.
Wondering where you can find this discretionary income to invest? Ask yourself if all of your standard expenses are actually necessities or “nice to haves”. 90% of your future wealth is based on paying yourself first by investing diligently.
5. STAY LIQUID WITH A CASH RESERVE
Be realistic about the funds you need to access over the next three to five years to live your best life. You can invest those funds in something safe that still yields a return such as a money market account or high-quality short-term bond. The goal being you beat inflation while having access to sell your investment without a loss.
6. INVEST IN STOCKS
Even though we have seen some lows in the stock market in the ‘60s and 70s, on average, the Standard & Poor’s 500 index has netted a 7% return over the past 20 years and over each 20-year period since 1926. This means that being in the market is better than not being in the market at all.
An option to buying individual stocks is choosing a quality ETF or Index Fund. Choose investments you understand and work with an investment advisor who keeps a daily pulse on the markets to help you picks the stocks that are right for you.
We’ve all heard the term don’t put all your eggs in one basket. Well, don’t put all your money in one investment either. When you diversify you should be investing across asset classes and within the asset classes too. Diversifying doesn’t guarantee you won’t experience any losses, but it does protect you in a declining market. There are many standard diversification strategies but the best one should be tailored to your goals and risk tolerance by an advisor who actively manages your portfolio.
8. DON’T TRY TO TIME THE MARKET
If you follow the right long-term strategy for you and the tips above, you won’t need to fully revise your entire portfolio on an on-going basis. Rather you will simply tweak it as you move into different phases of your life. The key is to stick to your strategy, don’t tweak too often and avoid making major adjustments during a downward economic cycle. Most often if you try to time the market, the market will win.
(INSERT TIMING THE MARKET VIDEO)
9. BE PATIENT AND KEEP YOUR EMOTIONS IN CHECK
Don’t get carried away with get-rich-quick “opportunities” that could put your overall financial health at risk. Stay disciplined and be patient.
It is easier said than done, but if you can master this tip you will come out more successful in your investments than many. Don’t invest with your emotions or ego. Keep your judgement in check by working with an investment advisor you trust to keep you and your investments balanced. Look for an investment advisor who provides you firm feedback, even if it isn’t aligned with your emotions at that moment. You don’t need a button pusher buying and selling your positions at your every whim. Work with someone you are comfortable with and be honest and realistic with them about your financial dreams and risk threshold.
10. DON’T EVER SET AND FORGET
Your goals and needs will change over time. Although your overall long-term strategy might be in-tact, it doesn’t mean you shouldn’t re-visit every year and make adjustments for a better quality of life.
Take some time and build out your financial plan today, so you can reap the immediate and long-term rewards. With the right plan in place, you will minimize your investment fees, save on the taxes you pay now and in your tax returns.
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