{"id":5636,"date":"2019-03-13T07:00:29","date_gmt":"2019-03-13T12:00:29","guid":{"rendered":"http:\/\/billlosey.com\/?p=5636"},"modified":"2019-03-13T07:00:29","modified_gmt":"2019-03-13T12:00:29","slug":"long-term-investing-truths","status":"publish","type":"post","link":"https:\/\/billlosey.com\/knowledge-center\/long-term-investing-truths\/","title":{"rendered":"Long-Term Investing Truths"},"content":{"rendered":"\n

Key lessons for retirement\nsavers.<\/em><\/p>\n\n\n\n

You learn lessons as you\ninvest in pursuit of long-run goals. <\/strong>Some\nof these lessons are conveyed and reinforced when you begin saving for\nretirement, and others, you glean along the way.<\/p>\n\n\n\n

First and foremost, you\nlearn to shut out much of the \u201cnoise.\u201d<\/strong>\nNews outlets take the temperature of global markets five days a week (and on\nthe weekends), and economic indicators change weekly or monthly. The longer you\ninvest, the more you learn that breaking news can create market volatility.\nWhile the day trader sells or buys in reaction to immediate economic or market\nnews, the buy-and-hold investor has a long-term perspective and understands\nthat the market can have periods of volatility. <\/p>\n\n\n\n

You learn how much\nvolatility you can stomach. <\/strong>Market\nsentiment can quickly shift and so can index performance. Across 2008-18, the\nS&P 500 had a cumulative total return (dividends included) of almost 140%,\ncompared to just 8% for the MSCI Emerging Markets Index. During 2003-07,\nthough, the Emerging Markets index returned 391%, while the S&P returned\n83%.<\/p>\n\n\n\n

Here are the recent yearly\ntotal returns of the S&P: 2013, +30.71%; 2014, +13.57%; 2015, +1.30%; 2016,\n+11.94%; 2017, +21.83%; 2018, -4.38%. Do you see any kind of \u201cnorm\u201d or pattern\nthere? That is the kind of year-to-year volatility that leads people to find an\nasset allocation that is comfortable for them.<\/p>\n\n\n\n

You learn why liquidity\nmatters. <\/strong>The older you get, the more\nyou appreciate being able to quickly access your money. A family emergency\nmight require you to tap into your investment accounts. An early retirement\nmight prompt you to withdraw from retirement funds sooner than you anticipate.\nShould you misgauge your need for liquidity, you could find yourself under\nsudden financial pressure. <\/p>\n\n\n\n

You learn the merits of\nrebalancing your portfolio. <\/strong>To the\nneophyte investor, rebalancing when the bulls are stampeding may seem\nillogical. If your portfolio is disproportionately weighted in equities, is\nthat a problem? It could be. <\/p>\n\n\n\n

Across a sustained bull\nmarket, it is common to see your level of risk rise parallel to your return.\nWhen equities return more than other asset classes, they end up representing an\nincreasingly large percentage of your portfolio\u2019s total assets. Correspondingly,\nyour cash allocation shrinks.<\/p>\n\n\n\n

The closer you get to\nretirement, the less tolerant of risk you may become. Even if you are strongly\ncommitted to growth investing, approaching retirement while taking on more risk\nthan you feel comfortable with is problematic, as is approaching retirement\nwith an inadequate cash position. Rebalancing a portfolio restores the original\nasset allocation, realigning it with your long-term risk tolerance and\ninvestment strategy. It may seem counterproductive to sell \u201cwinners\u201d and\nbuy \u201closers\u201d as an effect of rebalancing, but as you do so, remember that you\nare also saying goodbye to some assets that may have peaked, while saying hello\nto others that might be poised to rise.<\/p>\n\n\n\n

You learn not to get too\nattached to certain types of investments. <\/strong>Sometimes an investor will succumb to familiarity bias, which is the\nrejection of diversification for familiar investments. Why does he or she have\n9% of their portfolio invested in just two Dow components? Maybe the investor\njust likes what those firms stand for or has worked for them. The inherent\nproblem is that the performance of those companies exerts a measurable\ninfluence on overall portfolio performance.<\/p>\n\n\n\n

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so they get heavily into the energy sector. When energy companies go through a rough patch, that investor\u2019s portfolio may be in for a rough ride. Correspondingly, that investor may have less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.<\/p>\n\n\n\n

You learn to be patient. <\/strong>Time teaches you the importance of investing based on your time horizon, risk tolerance, and goals. The pursuit of your long-term financial objectives should not falter. Your financial future and your quality of life may depend on realizing them. <\/p>\n","protected":false},"excerpt":{"rendered":"

Key lessons for retirement savers. You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others, you glean along the way. First and foremost, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-5636","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts\/5636","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/comments?post=5636"}],"version-history":[{"count":0,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts\/5636\/revisions"}],"wp:attachment":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/media?parent=5636"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/categories?post=5636"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/tags?post=5636"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}