“The single most important factor for successful lifelong stock investing is your average holding period.” Tom Gardner, CEO and Advisor, Motley Fool
In investing, and in life, you should create and follow a comprehensive financial and investing plan. A plan helps define your money management, investing goals, and objectives while also delineating the risks associated with them. So when market hits the proverbial fan, as it inevitably will, you can revisit your plan to help provide clarity, calm and guidance to the situation. Simply put, a plan helps you navigate through both storms and sunny days; it provides balance. So the next time ominous-looking clouds begin to swirl in the horizon of the markets, check your plan, stay calm, and stay the course.
Planning to utilize a long-term financial strategy is the best way to achieve success. Finding ways to grow our money over time is a sure way to increase our financial health.
Interest rate hikes are bad for technology and growth stocks because:
- Higher interest rates make materials and debt more expensive and reduce the future value of cash flows.
- Higher rates also make safer assets like U.S. Treasury bills more profitable and therefore more attractive.
Long term investors have two critical advantages over Wall Street and traders: time and patience.
- Time and patience are the two key edges long term investors have over most of Wall Street. And long term investors need to take every advantage of it.
- Time and patience the true investor’s friends, teacher, and guardian all wrapped into one.
The single most important factor for successful long term investing is your average holding period. The primary reason why so many retail investors lose to the market’s average return: They trade too much. You are urged to hold your investments for at least five years or longer.
Pullbacks in stocks are a natural part of the ebb and flow of markets. The S&P 500 has fallen 10% on average about once per year, 15% every two years, and 20% roughly every four years. When the stock market pulls back, it sometimes throws out the baby with the bathwater, as the old saying goes. This presents savvy and patient investors with an opportunity to pick up shares of growth companies on the cheap.
And no great long-term stock that hasn’t fallen 50% at some point along the way to market-crushing returns over the long term.
With time and patience, long term investors have been able to look past short-term market pullbacks to secure long-term outstanding portfolio returns.
It can be jarring when shares tumble, especially if you’ve just started a position. But, it’s essential that you ask yourself: Has anything fundamental changed with the underlying company, or is this just market noise? If you find that fundamentals remain, you can stay the course.
Periods of significant market volatility are a great reminder to double-check that your portfolio’s asset allocation is in line with your overall risk tolerance and financial goals. Once you are confident that your portfolio has an appropriate long-term equity exposure, you can rest assured that any short-term volatility won’t be a meaningful factor. This helps investors avoid one of the most damaging of investing mistakes: making inopportune market-timing decisions.
Putting together a successful investment portfolio takes a combination of research, patience, and a little bit of risk.
Save. Invest. Hold. Repeat. As best you can, over time.
References:
- https://www.fool.com/premium/stock-advisor/coverage/4056/coverage/2021/12/01/your-most-powerful-investing-edge-in-volatile-time/