What Every Long Term Investor Should Know

The following is a sponsored blog post:

Long term investors often find that their patience pays off. It can be alluring and easy to switch from one investment to another due to short term results. These instant outcomes, however, are not indicative of how the stock, bond, or fund will perform in the future.

Long term investors are able to analyze the information they have access to and make credible assumptions about how the market will perform. It is based upon this that individuals will then buy gold, invest in real estate, or purchase stocks. There are some tips that every long term investor should be privy to:

 

Temporary Volatility

It can be easy to get caught up in the minute fluctuations of your investments. It can also be quite unsettling to see them not perform at an optimal level. As a long term investor it is imperative, however, not to be affected by these temporary depreciations. The stock market and investments in general are quite volatile. Even the most reliable investment will, at some point in time, take a turn for the worse. An investor who is focused on future expectations will have to learn to ignore the inevitable decline in value. It is only then that you will be able to look at the big picture as a whole. This will help you to better manipulate your investments.

 

Run with the Winners

It is easy to focus on the law of averages. We are used to observing that all that goes up must come down. Investors tend to apply this logic to their ventures that are performing extremely well. This is with good reason; all highs must level off or even decrease. If your stock is performing well, stick with it. This is the only way that you can ensure that you will make as great a profit as possible. If you are unsure about continuing with a stock, attempt to gain a better understanding of it. This will allow you to understand why it is performing so well and get a glimpse of when the value might begin to decline.

 

Drop Declining Stock

Hope is an admirable trait. There comes a time, however, when even hope must face up to the harshness of reality. There are certain investments that recover after a period of decline. There are just as many that are doomed to failure. If a stock or investment has been performing consistently badly, it may be time to dump the stock. When your venture is not doing well, it is best if you quit while you are ahead. You will, at the very least, be able to minimize the amount of losses that you incur. In the game of investment, you win some and you lose some.

When you are a long term investor, you are able to ride out any temporary periods of decline in the economy. You will be able to emerge from the other side victorious if you simply choose wisely and implement a plan for your stocks. It is important to see beyond present circumstances and to the possibilities of the future.

10 thoughts on “What Every Long Term Investor Should Know

  1. Hi sponsored post (by learncapital?)

    I think a key point that people who don’t invest in any type of stocks (index or individual picks) is that volatility and risk are not the same thing. Just because something goes up 3% one week and down 3% another week doesn’t mean it’s risky, it’s the performance of the underlying business that is the risk or not.

    Tristan
    Dividendsdownunder recently posted…What is Franking Credit and why is it important?My Profile

    • Hi Dividendsdownunder,

      Well said, “…it’s the performance of the underlying business…,” which really should be the main concern when making any investment decision. Often people equate volatility and risk as being the same thing but, as you stated, they are not. I guess people tend to panic any time an investment goes down in the short term and often fail to see the light at the end of the “long term tunnel.” As always, I appreciate your comment.

  2. The Law of Average, I guess is the diciest of propositions. You cannot really go on to change your winning strategy even knowing full well that it is perhaps only the law of average which might see you at the receiving end

    • Hi JP,

      Sometimes, focusing on income rather than capital appreciation only, can make investing a little easier when looking at the “Law of Averages.” My main concern is creating an ever increasing passive income stream no matter if my stock picks go up or down. By focusing on dividend sustainability, I can reliably create a passive income stream that is very predictable in what it can return. I appreciate your comment.

  3. For investors, as mention by Tristan, the volatility is most likely the most hard part to handle and understand. People tend to loo each day and judge the result on a snapshot. In my opinion, volatility is my friend: I am in build up phase. It also means I need to find a solution when I am in wealth conservation phase (some might disagree)

    Being an indexer, point 2 and 3 are less applicable to me. On top of that, I buy each month, so I cost average my way into investments. But I do see the point for other investors: are you DGI, then you need to take action when the dividend is at risk. Or s a growth investor, you need to analyze if the growth potential is still there.
    amber tree recently posted…Trying something new: ENGIMy Profile

    • Hi at,

      Filtering out all the financial noise and headlines is tough but necessary when being a long term investor. It’s true that people are very short sighted and often make investment decisions based on day to day headlines. Like you, I also buy every month no matter what the market conditions are. This way you can average into a position over time and always have cash to average down if need be. Thank you for your comment.

    • Hi EL,

      I fully agree with you. Simply saving your money will not get you ahead and while appreciation is always nice of any asset, I would be much happier with that asset simply returning me an ever increasing passive income instead. Thank you for stopping by and commenting.

  4. Understanding that volatility is not the same as risk is truly one of the most important things to understand if one is going to be a successful long term investor. One can’t be too concerned with day to day price swings. It’s an age old lesson, but it ALWAYS bears repeating for the new generations of investors that spring up.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…How Do I Deposit A Check At An ATM?My Profile

    • Hi ARB,

      I’m totally with you regarding the differences between volatility and risk. I think patience is probably one of the most important virtues for being a long term investor. Human nature makes us all very short sighted and reactive to current events rather than stepping back and looking at a total long term picture instead. As always, I appreciate your comment.

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