Investing for your long term goals

December 1, 2016

When you have a longer time horizon before retirement or sending your children off to university or college, there are some things to consider about your investment portfolio.

 

Investment returns can take time The term “buy and hold” relates to an investing strategy of buying securities with a good long-term outlook for capital gains and receipt of dividend income over the shorter term. A long-term equity investor is one who waits patiently for capital growth, while holding his or her stocks (or stocks within funds) for extended periods of time, waiting for their gains to accrue favourably.

Invest with your goal in mind Balancing a portfolio periodically assures that your portfolio has a good ratio of securities invested in non-equity funds (money market, balanced and bond funds) thus holding ratios of investment types lining up with your risk tolerance. Balancing your portfolio is done from the time you invest right up to the timing of the need for your money.

Don’t expect markets always to boom Investors who “buy and hold” realise that it is important to control their feelings because all stock markets will inevitably display more volatility over short-term periods. There is a cycle of ups and downs in the world of business referred to as the business cycle.

Stock markets never rise or decline forever A fund investor who does not have the persistence to stay invested may sell when the market goes down, defeating the mandate to achieve growth over a longer period. Buy and hold growth is only achievable during more extended periods of commitment, allowing equities to increase their price valuation, regardless of the peaks and valleys of business cycles.

Engage the help of professional fund managers Psychological fears, and certain imbalances such as the 2007-2008 sub-prime mortgage debt crisis affect the stock market and equity fund unit prices. We can never actually predict when the market will gain or lose. Therefore, the long-term investor in equity funds (holding stocks) should have the best fund or investment managers to take care of buying and selling quality securities.

Don’t sell when the market is down Normal short-term volatility can negatively affect the value of one’s portfolio if an investment fund is sold by an investor when unit prices have dropped during a market correction. If not invested and the market takes off again future gains cannot accrue. For this reason, the disciplined investor takes some risk to hold on to investments during a market downturn to a degree. Good stocks can regain their values and continue to grow despite short-term fluctuations which occur due to periodic market corrections.

Know your risk tolerance A financial planning specialist can ask a series of questions to measure your personal risk tolerance level, which differs per person.

 

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