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The Secret To Successful Long-Term Investing and How To Use It To Your Advantage

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Todd Woods

Todd Woods

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What's the secret to long-term investing? The answer is built right into the question: time. 

When you consciously incorporate time into your investment decision-making process, you dramatically increase your chances of success.

How can you create a long-term investment strategy that helps you reach your goals?

Prioritize Time In The Market Not Timing The Market

When you think about investing, it’s easy to get caught up in the excitement. You might try to ride the current hot stock or trend and then sell just as it reaches its peak. However, attempting to time the market is nearly impossible consistently. 

To do it successfully, you have to buy at the lowest price and sell at the highest. That means being right twice… every time! 

While economists and financial experts can make informed decisions about market trends, no one has a crystal ball to determine exact market behavior. Why? Because markets are volatile. They don’t operate according to predetermined, neat patterns. There are measurable elements that impact the market, like the economy and inflation. Still, they are also driven by emotions and gut feelings, making them capable of turning on a dime.

The reality is, timing the market is more of a guessing game than a principled approach. Your retirement plan shouldn’t be based on a guess—no matter how educated the guess is.  

A proven strategy is to choose diversified and appropriate investments based on your time horizon and then stay invested until that time comes. Additionally, your assets should consider your risk tolerance and capacity as well as your goals. Investing for retirement will look different than investing in your grandchildren’s education. 

In general, investors tend to find the most success when they invest in the market long-term. What does that mean? Many people think 10 to 15 years, but true long-term investing is even longer, like 20, 30, or even 50 years. If you start investing for retirement at 25 and the average retirement age is 61, that puts you at 36 years! 

If you focus on too short of a timeframe, you may be tempted to buy recent winners, which could very well be next year's biggest losers. Focusing on the long-term will help you avoid poor timing decisions and makes investing far less stressful too.

Set Long-Term Investing Goals

Time is an essential factor for making investment decisions and is itself a primary driver of investment returns. As time passes, your money begins to compound. This compounding effect alone can be responsible for the doubling, tripling, or even more significant growth of your money if you give it enough time. When experts talk about investing early, the potential for compounding effects is why. 

If time is such a significant factor in the growth of your investments, then it’s essential to set goals with time in mind. Ask yourself,

  • What are your long-term goals?
  • What investments are in place to help you reach those goals?
  • Have you automated your investments?
  • Are you saving enough to stay on track?
  • Why are those goals important to you? How do they add value to your life?

Whether you are saving for retirement, building a dream home, or wanting to leave an inheritance, be deliberate about your investment timeframe. The longer you are in the market, the larger your account will grow as long as you stay focused.

Create a Portfolio With Time In Mind

After setting long-term goals, one of the primary ways to incorporate time into your investment strategy is through your asset allocation. Your asset allocation refers to how and where your money is invested, and in the most basic sense, refers to how you split your money between stocks and bonds. 

As you dig deeper into your asset allocation, you should consider how much of your investments are in different sectors or slices of the market. Examples of this are government vs. corporate bonds, small company stocks vs. large-company stocks, or foreign vs. domestic companies.

Your allocation, not the specific stocks you select or when you buy them, is the key to maintaining proper diversification. Choosing the correct asset allocation based on your time horizon and goals allows you to maximize your potential returns while efficiently reducing your risk.

Your asset allocation, and related asset location, can also impact your taxes. Making the right decisions here can help you reduce your taxes and keep more of your investment returns. Once again, time is a critical component.

Work With a Team To Help You Put The Pieces Together

Investment decisions are not one-size-fits-all. Each investor is unique, and so are their investment goals. Their investment plans should reflect the elements that make them special, like their goals, risk, time horizon, and more. A team of professionals who know what is essential to you can help you curate a tailored investment solution that best fits your long-term plans. 

Working with a professional can also help you maintain focus and not get distracted by current hype or market excitement, which can often cause you to make investment decisions that amount to abandoning those long-term plans.

First Dakota Wealth & Trust has a demonstrated history of helping clients build portfolios that help them reach their financial and personal goals. We’d love the opportunity to work with you. If you have questions about how you can build your investments for the long haul, get in touch with us today

Disclaimer

First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity, and after death. We help clients develop a financial roadmap to help simplify their financial future.

Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department, or its employees provides tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.