A wise man once said, “The best time to start was yesterday, the next best time to start is now”.
Long-term investing requires discipline and patience which both require time to develop. Because of this, it’s better to start early as it helps you develop financial discipline and brings compounding into play.
We talked about compounding in a previous article but in the simplest sense this helps create a multiplier effect on your investments, the longer you invest the larger the potential accumulated earnings are.
Starting early gives your money more time to grow, and helps you keep up with inflation.
Take advice from various sources. Invest in some companies whose products and strategies you like. There is a multitude of comparison sites and other resources on the internet to help you to analyze and understand investments. Past performance is no guarantee of future performance but I would generally prefer to choose a mutual fund or unit trust that had been a strong performer over the last two years and which offers low management fees.
As much as we want it to be, we can’t keep investing our money forever, sure the potential earnings can be big but remember that you’re investing your money for a reason.
No matter what your goal is, the key to all long-term investing is knowing your time horizon or in simpler terms how many years before you need your money.
In terms of how many years constitute a long-term investment, there’s no exact number, however, most investors generally consider it as five years and more. By understanding when you need your investments, you can narrow down your goals, what type of investment to choose, and how much risk you’re willing to take.
Take, for example, a parent who’s investing in a college fund for a child who is 18 years away from being a student. Because of their long time horizon, they can afford to take on more risk because their portfolio has more time to recover from market volatility.
Equities are volatile, especially in the short term. In the long term, however, these can be rewarding and have the potential to deliver inflation-beating returns.
The potential of meaning inflation indexed returns from equities prompted many investors to remain committed to their investments for extended periods during the early days of the pandemic. Though in the short term many investors saw their returns in the red category, in the long term most were able to recover once the markets recovered returns soared. Soon investors were sitting on meaty gains.
Don’t put all your eggs in one basket. While having one incredibly successful investment is great, you have to consider that there’s always the risk of it performing poorly. Diversifying allows you to spread out your risk so should one perform poorly not all your investments will be affected provided you’ve invested in the right financial instruments.