The reality is that both short-term and long-term investment strategies are important for your financial health. It is helpful to think of the long-term investments as the foundation or the structure for your retirement and savings and the short-term investments as those additional perks along the way.
To understand why long-term investments are still the backbone of a successful financial plan, let's look closer at the advantages they offer. The longer you are able to allow the fund or the investment to mature, the greater the advantages will be.
- Peaks and valleys – Long-term investments aren't always going to be making money at the same levels, but the investment itself will average out over time. Those high peaks will wipe out those low valleys, but it will still be important to monitor trends and get rid of investments that are trending the wrong direction over time.
- Know your investments – It is very important to spend time learning about your investments. This means reading information on the company or the fund, learning about past performance, and reading about what is anticipated as future performance. A top financial advisor is a critical part of this plan and will provide that information in concise, clear terms that outline risk and potential earnings.
- Avoid emotional responses to buy or sell – If you are going to be a long-term investor, then you have to let go of the emotional or knee-jerk reactions to buy or sell based on what is happening over the short term. While you may get lucky and buy or sell at the right time, you also may walk away not realizing the full potential.
- Know your strategy – You should know the long-term investment strategy you are using and why it is the best match for your current financial picture. Depending on where you are in your life, you may be concerned about staying with low-risk options or having a specific mixture of investments in your portfolio.
Too many people don't have a structured strategy for their long-term investments. This limits your ability to make informed decisions and to focus in on your future goals and options with a careful, logical, and structured approach to investing.