In investing, thinking long-term is a good idea. I have always believed that time is your greatest asset.
Here are a few points as to why long-term thinking is a must in investing and why you should stick to a long-term mindset:
1) It determines your investment objective
People invest in various investment instruments depending on their objectives. Some want to grow their money to pay for an upcoming wedding while others want to start accumulating wealth for retirement. As a long-term investor, you have different objectives.
You may be investing to have enough money to build a home or save for retirement.
It’s important to have a long-term mindset when it comes to investing because it allows you to filter out unnecessary concerns.
As a long-term investor, the market reversals or downtrends should not cause you sleepless nights.
If you have a long-term horizon (above 10 years) you can wait the market out and recoup your temporary losses or better yet, continue to grow your investments. Long-term investing in the market determines your financial objectives in such a way that you know what purpose your profits will play. As a long-term investor, you can let your money sit in your investments instead of withdrawing them (at a loss) out of panic.
*The chart below shows you how the Philippine Stock Market performed over 10 years proving that it really pays to think long-term.
PSEi 2008-2018
2) It guides your investment directions
In relation to the above, having a long-term mindset guides your investment direction and decisions. As a long-term investor, you’ll put your money in investments different from those of the short-term investor. Short-term investors will put their money in, say, money market funds or bonds. You, as a long-term investor, may put your money in stocks instead. Knowing that you are a long-term investor gives you direction regarding where to invest and how long to stay invested in the market.
3) It keeps your emotions in check
Listening to emotions—it’s one of the most common mistakes people make when it comes to investing.
For those who weren’t in the market during the 1997 Asian financial crisis, the 2008 financial crisis, market corrections or downtrends may seem hopeless to new investors.
However, if you look at the historical performance of the Philippine Stock Exchange index (PSEi) from 1986 to 2018, the PSEi follows an up and down cycle, where the next ‘high’ is always higher than the previous ‘high.’
This is where your long-term investing mindset comes into play.
Being in the market for the long term (for a minimum of 10 years) allows you more than enough time to weather bear markets.
Historically, bear markets since the 1930s have an average duration of 18 months. If you’re investing for the long term, you have more than enough time to hold on to your investments until the downtrend reverses into an uptrend, signaling the end of a bear market.
In relation to letting your emotions get the best of you, if you have a long-term investing mindset, short-term fluctuations and volatilities should not bother you. Do not sell out of fear and panic. Keep your emotions in check. Remember that you have time on your side.
The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. – Proverbs 21:5, ESV
————————
If you are a Filipino in the UAE, catch me and my friends Marvin Germo, Tony Herbosa, Salve Duplito and Carl Dy at the Money Talks UAE 2018 Conference. Details HERE
Asean Integration: Impact & Opportunities
By Randell Tiongson on September 16th, 2014
As the nations are getting ready for the ASEAN Integration to begin in 2015, many are still unaware of the impact and opportunities the the integration will bring.
What is the integration about? How will this impact the economy and our lives? What are the opportunities will the integration bring?
Respected economist Dr. Alvin P. Ang, PhD and I will be teaming up for a timely seminar called “ASEAN Integration: Impact and Opportunities for the Filipino Investor” on October 18, 2014 at the Astoria Plaza Hotel in Ortigas Center, Pasig City.
Here are 5 questions that I got regarding personal finance. I kept the answers short and practical.
1) Monica wants to know what are UITFs?
UITF stands for Unit Investment Trust Funds, it is a kind of investment that is being offered by the trust departments of big banks. UITFs are pooled funds, where investors put money in a fund and there is a fund manager that will invest for them according to the objectives of the fund. Depending on where it is invested, UITFs can be conservative, moderate or high-risk investments. UITFs are good investments for long-term objectives such as retirement or the college education of young children. Though they are not guaranteed investments, they have proved themselves to be a good way to grow your money in the long-run. Remember that UITFs are long term investments so if you plan to use your money in the short term, do not put them in UITFs.
2) Should I invest my money in business or in the stock market, Christine wonders.
Comparing a business and stocks is difficult, like comparing apples and oranges. While both are investments and both are risky ones at that, they operate and function differently. Owning a business means you are operating it yourself and you are on top of the company. You have a direct involvement on how the company operates. The benefit of having your business is that you own all the profits and the gains of the business. The downside is that should the business fail, you will bear all the losses and you may not have the competence and experience to make a business succeed. Stocks are fractional ownership of businesses, big ones at that. Buying stocks lets you have a part of a successfully big company or several companies and you stand to earn dividends or capital gain of your shares when you trade them in the stock market. Downside of stocks vs. business is your gain, an issue of scale. You stand to get a much better return for your money when your business succeeds as against stocks.
3) Patrick wants to know what the risks are in investing your money.
Well Patrick, the biggest risk involved in investing is capital loss. While some investments are guaranteed, the good ones where you can earn more are never guaranteed. Returns are always a function of the risk you take – the higher the risks are, the higher the potential returns. Some investments like stocks and mutual funds are fluctuating – they do not appreciate in a straight line and expect them to be fluctuating constantly. But if you invest over a long period, like over 5 years, the chances of loss of money is minimized as investments fluctuate up over the years. Low risk investments are not necessarily free of risk – the biggest risk for guaranteed or low investments is inflation. Low risk means low return and they are often below inflation rates.
4) John asks who should be in charge of the money, the husband or the wife?
Our Filipino custom dictates that the wife should be in charge of the finances. However, our customs are not always right. Finances are conjugal and how to manage money should likewise be conjugal. I don’t think only one spouse should
be given the sole responsibility on how to be in charge of the money – both should discuss and agree as to what to do with their finances. The operation of the family budget like payment of bills, balancing of the check book and the like can be delegated to the husband or the wife. Which spouse? Well, the one who is more financially disciplined should be the one – whether a husband or a wife.
5) Bianca is wondering if there is a formula to be able to build wealth.
Yes Bianca, there is a formula — a fundamental process that you can follow that will allow you to build your wealth. Let me first say that achieving wealth is a process and there are no short cuts to wealth. In my book No Nonsense Personal Finance, I outlined 5 steps for wealth. First step is to increase cash flow; you can achieve this by earning more money and spending less money. Step 2 is getting out of debt – as debt will prevent you from achieving your goals. Step 3 is building your emergency fund – 3 to 6 months worth of your expenses is a good measure. Step 4 is getting insurance for your protection. Finally, the 5th step is learning to invest for your future.
