From stocks and bonds to real estate and business ventures, there are so many paths you could take as you invest for the future and build your wealth. By most estimates, there are over 630,000 companies in the world with publicly traded stock. This dizzying array of possibilities can leave you wondering how to navigate so many options.
With so much opportunity, many people are tempted to seek quick gains. While it’s tempting to try to time the market for short-term earnings, there are many benefits you can’t take advantage of with that strategy. Let’s look into why time in the market can often outperform timing the market.
When investors try to time the market, not only do they have to predict the bottom of the market to time their buys, but they also have to accurately predict the top of the market to know when to sell. Accurately predicting one of these peaks or valleys would be impressive, but predicting both of them is incredibly difficult.
Additionally, when you’re jumping in and out of the market on a frequent basis, you may miss gains that you would have caught had you been riding the natural ebbs and flows. These missed opportunities can add up over the years, leaving the short-term investor with fewer returns than those with a long-term strategy.
Nobel prize-winning economist Robert Merton called timing the market “a fool’s errand.” Such an endeavour requires an incredible amount of work, and it rarely offers the kinds of returns investors get when they take a long-term approach.
Many investing experts recommend using a long-term investing strategy for maximum returns. Here are a few of the potential advantages of putting time into the market.
One of the greatest advantages of long-term investing is that it significantly reduces the influence of emotions on your investment decisions. Hiccups in the market can be frightening, but with a long-term strategy, the roller coaster won’t send you into retreat. You’ll be able to maintain the big picture view and take advantage of your best investing asset: time.
While some short-term investors can earn large gains here and there, long-term investors get to take advantage of compounding (the ability to reinvest your profits). By reinvesting your dividends as you go along, you can see a marked increase in your wealth over time. For example, if you receive a 3% dividend and withdraw it when it’s paid out, your investment can double in about 33 years. If, however, you reinvest that dividend into more shares, your investment can double in in about 23 years! That’s the power of compounding.
One often-overlooked benefit of long-term investing is that it can be easier to correct your mistakes as you go along. If you find that your current strategy isn’t yielding the returns you want, you can change your strategy by investing in other companies or industries, tweaking your mix of stocks and bonds, or performing any other adjustments that will get you closer to your ideal portfolio.
Third-party experts can help you to keep an eye on your investments. Keeping your unique life circumstances and your investment goals in mind, your wealth adviser can set your long-term strategy and then maintain it by making adjustments as necessary to keep you on track.
Over the years, your adviser can help you navigate life’s changes, making changes to your investment strategy as your career changes, as your family grows, and as you prepare for retirement. To learn more about investing strategies, or to speak with a wealth adviser about your unique situation, get in touch with us at Altus Financial. We’re here to help!