Start thinking long-term

By Randell Tiongson on June 30th, 2022

As of this writing, most investments are not doing well and some are fearful that investments are crashing. Here is how investments are performing Year-To-Date (YTD): PSEi at -12.86%, Dow Jones at -14.61% and Bitcoins at -54.95%. As to how low  will investments get and when it will start to recover is anyone’s guess.

What should you do in times like this? Think long-term. Thinking long-term is a good idea when it comes to investing. 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 since 1988 proving that it really pays to think long-term.

PSEI 1988 to Today

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 2022, 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 have an average duration of many months 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 chart below shows you how US Stocks (DJIA) performed in the last 10 years.

10-Year Chart of the Dow Jones Industrial Average (DJIA)

If your tolerance allows you and you have extra funds that you want touch for many years, and assuming you have sufficient emergency funds, you may want to consider adding more now… that’s assuming you do not mind the volatilities and uncertainties. One thing I am sure about is that markets will go up again, as to when is something I cannot answer. Just make sure that you only invest on stuff you truly understand and make sure you diversify your investments properly.

The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty. – Proverbs 21:5, ESV

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Start thinking long-term