These tips can help you stay focused on your long-term investment goals.
Investing and running a marathon have a lot in common. Both require discipline, focus and a long-term approach. While sprinting could offer marathon runners a quick burst of speed that gets them ahead of the pack, that sprint is likely to work against them in the long run.
Just as marathon runners train for months or even years to prepare for a race, successful investors can make small but impactful decisions that can improve their long-term results.
Here are some tips to keep in mind if you’re looking to achieve long-term investment goals:
Consistent training is essential for marathoners; but before they begin, they need to establish a training regimen, then stick to the plan.
Tan Yuh Harn, head of discretionary portfolio management and ultra-high-net-worth solutions at RBC Wealth Management in Asia, says investing is very similar: The key to achieving long-term investment goals lies in doing the groundwork to determine a suitable asset allocation.
This groundwork includes but is not limited to:
“You need to know the long-term returns and volatility matrix of each asset class, then come up with an asset allocation aligned with your goals and risk tolerance,” says Tan.
There’s no arguing that a perfectly timed investment will add to your return. But as investors, making a call on the short-term direction of markets could hurt you just as quickly as it could help you.
Tan explains that if you invest like a sprinter, you will likely choose the riskiest and shortest time frame to achieve maximum gains.
He warns, “But in the event of a change in conditions – for example, an unforeseen hurdle or bump in the ground – a sprinter may not have factored in potential pitfalls and may end up getting hurt and failing to complete the race.”
“A marathon runner, in contrast, focuses on endurance and sustaining performance over a longer period of time,” Toh Tat Wai, head of portfolio strategy at RBC Wealth Management in Asia, points out.
He likens marathoners to successful investors where the latter are also less concerned with short-term fluctuations and more focused on the long-term performance.
When faced with a market sell-off – when prices of securities suddenly experience a sharp decline – the behaviours of a sprinter versus a marathoner in investing can differ significantly.
“Sprinters may be more inclined to panic selling during a market sell-off. Fear and the desire to avoid losses in the short-term may cause them to hastily sell their investments, potentially leading to the kind of losses they’re trying to prevent,” Toh says.
However, if you’re investing like a marathoner, you’re more likely to stay invested during a market sell-off. Toh explains that this group of investors understands that short-term market fluctuations are part of the investing journey, and they are therefore less inclined to make knee-jerk reactions during market turbulence.
In fact, market sell-offs may present buying opportunities for them. “They may view the downturn as a chance to add to their positions or invest in quality assets at discounted prices,” Toh adds.
Tan says investors should also learn to take advantage of market corrections to invest or average down – a strategy in which one purchases more of a stock they already own, after the price has dropped.
Just as a marathoner-in-training benefits from a good running partner or coach, a good financial advisor may play a crucial role in helping ensure that an investor’s strategy aligns with their goals and values through monitoring and regular reviews of the portfolio, Toh explains.
While it may be tempting to try to make quick gains or sprint past others, it helps to keep in mind that successful investing is a journey, not a one-off event.
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