Tips for Long-Term Investing Success
Seven Guidelines to Follow if You Want to Find Success in the MarketsKathy Longo, CFP®, CAP®, CDFA Monday, 18 July 2022
Investing can be a smart way to save money for your future financial goals, yet many people lack tips for long-term investing success. What’s difficult about planning to achieve goals in the distant future is that it can be easy to get distracted by short-term goals or to lose motivation because the goal feels so far off. Investors who find success in the market do so because they tune out the short-term and, instead, focus on the long view of their financial plan – evaluating their money goals, income needs, and assessing the spending demands of their lifestyle.
As you look toward your own financial future, read on for a few basic investing principles that are helpful to follow for long-term investing success.
#1: Get specific with your goals
If you go into investing with the sole motivation of making money, you’ll be more likely to get frustrated or nervous due to short-term fluctuations and let those emotions influence your decisions. But if you get specific about why you want to make money and what exactly it is you’re saving for, then you’ll be able to determine how much risk you can handle to meet your goals. Having detailed goals can also help you stay committed to putting money away each month to achieve your goals.
#2. Start saving as early as possible
Sure, how much you’re putting away for your future each month makes a difference, but not nearly as much as the duration that you’re saving for. Because of the power of compounding, the earlier you begin saving, the more time your investments have to snowball into something more. This is because you’ll get a return not only on the money you originally invested, but also on any interest, dividends, and capital gains that have accumulated over the time of your investments.
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#3. Build up your emergency fund
You might think your emergency fund isn’t related to your investment portfolio, but it truly is. Think about it – one of the smartest ways you can protect your long-term invested dollars is by building a separate savings you can fall back on for an unexpected financial emergency. Without an emergency fund, you may be forced to dip into your long-term savings or prematurely liquidate long-term assets you own. Generally, a good rule to follow when it comes to building an emergency fund is to put away enough cash to cover three to six months’ worth of living expenses.
#4. Take advantage of tax deferral opportunities
If you have a lot of discretionary income, it can be tempting to use that money for impulse buys or to level up your lifestyle, but don’t let short-term temptation derail you from your long-term goals. Tax deferrals can help boost your savings just as much as compounding when it’s done correctly. It’s typically recommended to contribute anywhere from 5-10% of your pre-tax income to a retirement savings account whenever possible. At the very least, be sure that you’re contributing enough to take full advantage of any matching contributions your employer may be offering so that you’re not leaving free money on the table.
#5. Don’t be afraid of taking on risks, just be smart about it
It can be scary to put your hard-earned money into something as volatile as the stock market. However, taking a risk is what gives you the opportunity to really build your wealth over time. The key is to be smart about how much risk you’re taking on depending on where you are in your investment journey and what your current financial situation is like. If you’re early on in your career and have decades ahead of you, you have the ability to take on higher risk with your investments because you have time to make back anything you might lose from a dip in the markets. However, the closer you get to retirement and your other long-term goals, the less risk you’ll want to take. It comes down to keeping your portfolio diversified and making sure that you revisit it regularly so you can make any necessary changes to your investments.
#6. Keep emotions out of your decision making
When it comes to investing, it’s important to remember that the magic happens over a long period of time, not in the short term. So, try your best to not let anxiety or fear lead you to make any big decisions like buying or selling stock because of a current market trend. A good way to do this is to make a valiant effort to avoid information overload anytime the markets become volatile. In today’s digital age where we’re constantly bombarded with media, it can be easy to let scary headlines get the best of you. Having a trusted financial advisor who can help walk you through any emotions you’re feeling and talk out any decisions you may be considering can be a smart way to be sure that you’re not letting your emotions dictate your decisions.
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#7. Recalibrate your portfolio but avoid tinkering with it
Once you’ve sat down and built out your portfolio, try to remain as hands-off as possible. While you don’t want to just “set it and forget it,” you also don’t want to be constantly tinkering or you’ll end up hindering your success. Instead, periodically rebalance your portfolio when it’s necessary to bring your investments back to your target allocation or if you’ve had a change in circumstances that requires an adjustment. Otherwise, let the power of time do it’s thing.
Achieving long-term success with your investments
Though the markets may hit volatile periods throughout the years, the long-term trend has always been positive. By creating a comprehensive financial plan that maps out how you can achieve your financial goals, you’ll be better able to ride out market volatility and find long-term success. Using guardrails such as the ones listed above can help ensure that you’re staying disciplined and being smart with your investments.
At Flourish Wealth Management, we work with our clients to learn their goals and aspirations so that we can help them define the appropriate level of risk and determine the best investment allocations to achieve their goals. If you’d like to begin a conversation with one of our professionals about your investment strategy, please contact us today.
About the Author
Kathy Longo, CFP®, CAP®, CDFA
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.