Long Term Investing
Recent medical advances and the fact that people are choosing to live a healthier lifestyle means that many of us will be able to enjoy much longer lifespans than the previous generations. The Organisation for Economic Co-Operation Development (OECD) suggests that the average man will live to 83.5 years old, whilst women can be expected to live until 87.2 years! Whilst this is some very good news for us individually, it also raises the question: “How do we fund a fulfilling life beyond our working years?”
Whilst some investors think of cash as a safe haven in tough economic times, or even as a source of income, this is not the case. In actual fact, the ongoing era of extremely low interest rates has depressed the return available on cash to almost zero, leaving cash savings vulnerable to erosion by inflation over time. Because of this, investors should be sure an allocation to cash does not undermine any long-term investment plans.
Compounding is one of the main advantages associated with long term investing. When your investments produce earnings, those earnings can be reinvested and can earn you even more money. The more time your money stays invested, the better. You need to keep in mind that while compounding can have a great long-term impact, there will be periods of time where your money doesn’t grow at all.
But don’t panic!
Instability in financial markets is completely normal, and if you are an investor you need to be prepared for the rollercoaster ride that is investing, and not react emotionally when the going gets tough. Don’t panic! A lot of the time, a stock market pullback (when the market temporarily falls) can turn into a great opportunity and is not always a reason to sell. Market timing can be a risky strategy. Pullbacks are often hard to predict, and sometimes strong returns often follow the worst returns. And even missing only a few days in the market can have a huge impact on the investors total returns.
Whilst it is true that markets can always have a bad day, week, month or even a bad year, history has proven investors are much less likely to suffer losses over long periods of time. If you have any financial queries feel free to tweet us @MACFinancial