Thoughts on Long-Term vs. Short-Term Investing
Sometimes I wonder why I include an investment commentary section in my favorite read’s blogs. From the first time I meet with a prospect, I talk about why trying to beat the market shouldn’t be your goal. You want to set savings and investing goals that can help you live your desired lifestyle in retirement – and before that, too. I also stress the importance of having a process when investing. Why? It can help minimize the impact your emotions can have on your portfolio.
Following the market’s daily ups and downs can increase stress levels. It can cause you to worry too much. Watching the financial news can cause more harm than good. Financial networks often sensationalize current events. Doing so can draw your attention and lead to higher ratings.
I rarely watch the financial news networks. I pay attention to what’s happening in the markets. But I prefer to read about it. That makes it easier to remove emotions from the equation. It also allows me to better understand both sides of the story. This helps reduce the chances of confirmation bias, too.
Especially when investing for retirement, focusing on the long term is essential. By investing, you express a view that you think the market will move higher over the long term. Otherwise, you have no reason to invest. If you believe the market will deliver long-term gains, it means you have less reason to worry about the market’s near-term fluctuations.
Market downturns represent opportunity. If you regularly add money to the market, a falling market works in your favor. Why? You can buy more shares for the same amount when prices fall. Worrying about the market’s performance today, this week, this month, or this year matters a lot less if you have a long-term focus.
My portfolio includes stocks I have owned for more than 25 years. While that’s not the case with every security I buy, it is the goal. The overriding goals:
· Find good investments you can hold for a long time.
· Regularly add to your savings.
· Identify the most important goals and work towards achieving them.
The market offers investors ample opportunity to fail. On any given day, over any length of time, the market presents opportunities to be fearful. On these occasions, you should overlook the desire to sell and increase your cash balance. Yes, cash is safer. But prices inflate over time. If you hold too much cash, your buying power decreases. Your chances of success fall as well.
This doesn’t mean you shouldn’t have any cash in your portfolio. You should have an emergency fund. When you retire, as discussed in this blog, consider putting some cash aside to protect against market declines, too.
Almost every day we can find someone predicting doom and gloom for the markets. For example, a search for “Harry Dent Market Crash Predictions” yields about 825,000 results on Google. If you search Google for “Robert Kiyosaki Market Crash Predictions” you will get about 286,000 results. You can top both of these outcomes by searching for “David Tice Market Crash Predictions.” That one results in about 1,050,000 results. Believe it or not, the odds favor that any or all of them will be right at some point. On average, a market crash happens about once a decade. A broken clock shows the right time twice a day, too. A market forecaster who constantly predicts doom will have his or her day in the sun.
I hope I’ve given you some food for thought when it comes to following the market. I hope it gives you greater insight into why the short-term fluctuations don’t mean as much as you think.
I was going to write a bit of a detailed market summary for the year’s first half this week. What I’ve written so far convinced me to scale back that effort. I’ll provide a brief overview and then move on to my five favorite reads of the week.
Stocks finished the year’s first half with double-digit percentage gains. An economic recovery that many believe is still gathering steam likely led the way. The S&P 500 Index closed June at a record close of 4297.50, up 14.4% year-to-date. The quarter marked the S&P’s fifth consecutive quarterly gain. That represents its longest such streak since a nine-quarter stretch that lasted through 2017.
As discussed in this week’s third story, before Thursday’s decline, the S&P had doubled from its March 23, 2020 pandemic-related low. That’s the second-shortest period for the market to double off a bear market bottom – a market that falls more than 20%. It took only three months to double from the June 1932 low.
On Thursday, Japan declared a state of emergency related to the upcoming Summer Olympics. Renewed coronavirus concerns resulted, halting the S&P’s strong start to July. The index fell 1.0%. The index is up 0.4% month-to-date. It has gained 14.9% year-to-date.
Concerns about inflation have dissipated a little over the last couple of weeks. But worries about inflation, higher interest rates, and the potential impact of the delta variant on those who have yet to get their vaccines – if that’s you, please get vaccinated – leave investors with some market-related uncertainty.
Against this backdrop, my recommendation remains the same – maintain a long-term focus. I still have a positive long-term view.
Here are the links to this week’s articles as well as a brief description of each:
1. Is Day Trading a Good Idea? Have you ever thought about day trading? When markets rise, interest grows. We read stories about other’s supposed success and want to participate too. Can you make money day trading? Of course. But the likelihood that you will make money is low. Most day traders DO NOT make money. This article shares some data to back that statement up. If you want to build wealth from the stock market, consider an asset allocation strategy that gives you broad market exposure. Determine a rebalancing strategy. Keep adding money to your account. If you want to research individual stocks, buy and hold high-quality businesses. When I wrote for The Motley Fool, I shared my thoughts after attending a day trading class.
2. Why Purpose Is the Most Important Attribute an Entrepreneur Can Have. Do you have your own business? Are you thinking about starting one? If you answered “yes” to either question, I have one more question for you. “Why?” According to this article, having a strong “why” behind your business is essential, at least if you want to be successful. How do you know what your “why” is? The article provides two questions to ask yourself. I shared my why in this blog.
3. How Long Does It Take for the Stock Market to Double off a Bear Market Bottom? The last 15 months provided quite a ride for investors. The S&P 500 fell 34% from February 19 to March 23, 2020. Including dividends, since then, the S&P has doubled. Such a huge return over such a short period is rare. The only time the market doubled in less time was from its depression-era lows in June 1932. It only took three months that time. I love the footnote at the end of the article as well. The S&P 500 is up nearly 730% from its March 2009 lows. This serves as another reminder of how investors who regularly add money to the market can benefit from market declines.
4. Getting the Goalpost to Stop Moving. When it comes to money, there are few hard and fast rules. This article shares what may be the most important one: “If expectations grow faster than income, you’ll never be happy with your money.” This concept relates to the concept of lifestyle creep. In other words, our standard of living improves as our income rises. Today’s luxuries become tomorrow’s necessities. We should aim to get the goalposts to stop moving. Doing so requires two skills:
· Finding a balance between what we expect and what we need.
· Managing expectations and learning how to say no.
5. Should My Money Stay or Go? Employer 401(k) vs. IRA Rollover. When you change jobs or retire, you have choices relating to your 401(k).
· You can leave it where it is;
· You can roll it into an account with your new employer; or
· You can roll it over into an IRA.
This article discusses the important factors to consider when you leave your job and need to decide what to do with your money. A fiduciary financial advisor can help you make the decision that’s best for you. If you need help making this decision, please schedule a free, no-obligation call.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.