First and foremost, investors must learn to shut out much of the “noise” when it comes to long-term investing.
News outlets take the temperature of global markets five-days-a-week (and on the weekends) and economic indicators change weekly or monthly.
The longer they invest, the more they learn that breaking news can create market volatility. Shot-term volatility should usually be ignored.
Investors learn how much volatility they can stomach. Market sentiment can quickly shift and so can index performance.
Across 2008-18, the S&P 500 had a cumulative total return (dividends included) of almost 140 percent, compared to just 8 percent for the MSCI Emerging Markets Index.
Investors learn why liquidity matters.
The older our clients get, the more they appreciate being able to have to access to their money.
A family emergency might require them to tap into their investment accounts. Early retirement might prompt them to withdraw from retirement funds sooner than they anticipate.
Should they misgauge their need for liquidity, they could be under sudden financial pressure.
Investors learn the merits of rebalancing their portfolio. To the neophyte investor, rebalancing when the bulls are stampeding may seem illogical.
If your portfolio is disproportionately weighted in equities, is that a problem? It could be.
The closer you get to retirement, the less tolerant of risk you may become.
Even if you are firmly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position.
Rebalancing a portfolio restores the original asset allocation; realigning it with your long-term risk tolerance and investment strategy.
You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments.
The phrase “All the eggs in a few baskets” may apply here. The inherent problem is that the performance of a few companies exerts a measurable influence on overall portfolio performance.
Sometimes we see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so they get heavily into the energy sector.
When energy companies go through a rough patch, that investor’s portfolio may be in for a bumpy ride. Correspondingly, investors from other occupations may have more capacity to tolerate stock volatility than someone in a sector with less volatility.
You learn to be patient.
Time teaches you the importance of investing based on your time horizon, risk tolerance, and goals. The pursuit of long-term financial objectives should not falter.
After nearly 70 years of collective investment experience, we have learned that your financial future and your quality of life may depend on your patience and by taking a long-term approach to investing.