As retirement investment advisors, we will tell you that confident commitment is at the core of long-term investing. A standard definition of an investment in the financial world is an asset that generates the potential for income or appreciation over a certain time. There are few things in life as important as making suitable investment decisions.
In this article, we will explore some aspects of investments that help build the confidence you need to make long-term strategies work for you, such as:.
- Risk tolerance
- Time horizon
- Portfolio maintenance
- Self-awareness and financial discipline
It’s time to find out why comprehensive financial planning is so important. Use this quick guide to help you strategize for any market condition, like inflation.
What is long-term investing?
Many people wonder about the differences between long-term vs. short-term investments. The answer to that question depends on the person responding, but there are some general rules of thumb you can use when deciding if an investment could be considered “long term” or not.
Long-term investments are those you plan on holding for over a year and possibly as long as 30 or 40 years. These are oftentimes referred to as “buy-and-hold investments.” Some people consider short-term investments as anything less than a year.
Generally, the long-term could potentially present less risk than short-term investments and can provide investors with more consistent returns over time.
Every investor has their own risk tolerance. Risk tolerance is determined by personality and financial situation. Knowing your risk tolerance can help you determine where to invest and how much of a long-term investment is appropriate for you. It can also help determine how much time you should wait before selling it when the market goes south.
Consider whether you’d be comfortable if the value of an investment dropped substantially overnight and how that loss would financially impact you and your family. If you would be able to sleep at night knowing there is money in the bank or other safe investments, regardless of what happens in the stock market, then maybe it’s worth taking some calculated risks for the opportunity of a higher future return in a long-term investment.
A financial advisor in Bountiful, UT, can use risk management solutions as part of the risk management process, a vital part of the investment decision-making process. It involves identifying and assessing potential risks, as well as taking steps to mitigate those risks.
Risk management is a critical aspect of long-term investing because it helps determine whether an investment will achieve its stated objectives and how much can be invested there. If you’re going to be making an investment, risk management must play a significant role in your portfolio construction process.
Understanding time horizons
A critical factor in determining whether an investment is long-term or short-term is time horizon. The time horizon is the length of time an investor is willing to commit to an investment or in some cases, how long until they plan to use the money being invested.
As mentioned earlier, the definition of a long-term investment can be discretionary. For example, if you have $10,000 in cash and plan to invest it for ten years without touching it down the road—that would be considered a long-term investment. On the other hand, if you want to invest your money for one year—that would be considered a short-term investment (although some may consider this still too long).
Different types of investors may have other definitions based on their own experience and preferences; however, most people understand what makes up “longer” or “shorter” periods when discussing investments.
To maximize your portfolio, you may need a retirement review and portfolio analysis, which we can do for you, complimentary.
- Rebalancing: Rebalancing is a required action that your wealth manager can do on your behalf. This is maintenance that involves periodically moving money from one asset to another, or from one portfolio to another, to bring the risk level back to where you want it.
- Tax management: Tax management is at the core of all portfolio construction and decision making. Taxes can negatively impact portfolio performance and eventual income if not planned for accordingly. Tax mitigation strategies include making tax-advantaged investments, tax-loss harvesting, and using any available tax credits and deductions related to your personal situation.
- Diversification: Investing in a variety of assets helps to ensure that no single investment can significantly derail the performance of your entire portfolio. A key factor for the long-term success of a diversified portfolio is its ability to weather market downturns without taking heavy losses. Diversification has proven to help avoid single-risk investment, ultimately reducing the risk of a portfolio.
- Reinvesting dividends: The reinvesting of investment dividends helps boost returns over time. Dividends are passive income payments from the company or fund you are invested in. By reinvesting the dividends, you are growing your position in that investment and creating more opportunity for future growth.
Planning for retirement
The first step in planning for retirement is to find a financial advisor in Bountiful, UT, who can help you create a personalized plan that matches your retirement goals and time horizon. Find out if they have experience working with clients like you, what their investment philosophy is, and how they collaborate with their clients.
Ask them about their fee structure and how they handle conflicts of interest. This includes whether they have any conflicts in terms of working with any other advisors on your team, such as a CPA or lawyer. Ask if there are any restrictions on investing recommendations based on the size of your account balance or income.
You deserve full transparency in all endeavors as part of the risk management process.
Long-term investments can pay off with self-awareness and financial discipline
Long-term investing can pay off, but it takes careful planning, follow through, and confident commitment.
To ensure your long-term investments work for you, discuss your long-term investment strategy with our team at ARS to better understand and accept the risks of investing that are in alignment with your financial goals.
If you have any questions about financial advice or just want help identifying risks and finding suitable investments for you, reach out to us! We’re always happy to discuss other options and ensure that your portfolio is in tip-top shape.
CERTIFIED FINANCIAL PLANNERS™ at Advanced Retirement Strategies
Working with a CERTIFIED FINANCIAL PLANNER™ is an excellent investment of your time and money. With the high standards for CFP® certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards.
Our team of retirement planners and investment advisors in Bountiful, Utah specializes in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement.
If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us now.