Buy! Sell! Bull! Bear!
It’s no wonder people are spooked by the frequent fluctuations of the stock market. Financial news websites and TV channels frequently dramatize the highs and lows of the financial world.
So why would you want to put your money into a marketplace that is often compared to the latest hair-raising roller-coaster ride?
Because there’s a better solution than fretting over each day’s gains and losses. Instead, consider taking a long-term approach to investment, which is a proven method of accumulating wealth and ensuring your financial future.
Take your time
Renowned investing wizard Warren Buffett once said, “Our favorite holding period is forever.” He added: “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
The point is that time is your friend. When you’re in your 20s or 30s and concerned about saving for the future, time is your biggest advantage.
Look at any online stock chart, where you can analyze the performance of stocks, bonds, mutual funds, or exchange-traded funds (ETFs) in terms of one day, one year, five years, or life.
If an investment is worth considering, you’re likely to see the most reliable returns after 10 years. Thinking long-range investment is your best bet.
Contribute monthly
You don’t need a lot of money to start. Consider what compound interest can do for you. Even Albert Einstein was impressed. He called it the “eighth wonder of the world.”
By investing just a small amount of money each month, you can build a substantial nest egg over time. This is called dollar-cost averaging.
The idea is simple but powerful: By routinely adding a set amount of money to your portfolio, no matter how the stock market is performing, you automatically buy more when stocks are down (because shares are cheaper when the market falls) and a little less when they are up.
This strategy helps to offset the daily ups and downs of financial markets.
Diversify far and wide
There is a certain level of safety when you spread your money across investments — stocks, bonds, savings accounts, domestic and international funds, and real estate.
Sometimes, stocks surge while bonds are unpopular. Other times, the opposite is true. Similarly, international investments may do well while the domestic market is down and vice versa.
This is why diversification has long been the mantra of investment professionals.
Build equity
Finally, even if you’re not interested in investing in the stock market, taking a long-term approach is to your advantage for other kinds of investments, such as real estate.
When you buy a house, it may be a little disheartening at first to see how much of your monthly payment goes toward the interest on the mortgage.
But 15 to 20 years later, you’ll be pleasantly surprised to see how much of your payment goes toward the principal.
This is how you build equity, a solid financial foundation that will most likely increase in value over time.
The bottom line
In a culture of quick fixes, fast food, and instant gratification, it’s not easy to think about long-term investment. But when you look beyond the cultural blinders, you’ll begin to appreciate how time can be the most important factor in your future success.
