Are You Really a Long-term Investor?
Many people have been investing for a long time and their goals, such as retirement, are years away. Therefore, they consider themselves to be long-term investors. But are they?
Real long-term investors aren't necessarily those people who have been investing for many years or who have their eyes on distant goals - although those two elements are important. True long-term investors share several common traits. Let's consider some of them:
They own the same investments for many years. Investing is not a risk-free endeavor - and your investments will have their "ups and downs." But long-term investors choose quality investments and stick with them through good times and bad. These investors have the ability to look past all the events - political turmoil, high energy prices, market volatility, corporate scandals, etc. - that send some people to the investment "sidelines."
They don't deviate from their strategy. Long-term investors establish a strategy based on their individual needs, goals, preferences, risk tolerance and time horizon. Then, once this strategy is in place, they follow it steadily through the years. For example, if they determine that their goals for a comfortable retirement require them to build an investment portfolio consisting of 70 percent stocks and 30 percent bonds and "cash" instruments, then they will try to maintain that proportion. This is not to say, however, that they are inflexible. If their needs change somewhat over time, they make adjustments - but they don't abandon their overall strategy.
They invest in companies - not stocks. Successful long-term investors pay little attention to day-to-day (or even month-to-month) shifts in stock price. Instead, they focus on the companies themselves, and they ask the right questions: Is the management solid? Does the company have a sound business plan? Are its products competitive? Does it belong to a healthy industry?
They don't listen to "hot tips." Long-term investors do whatever they can to avoid expensive mistakes - such as chasing after "hot" stock tips. Of course, these tips can come from anyone - from the so-called "expert" on television to the well-meaning brother-in-law. Unfortunately, many of these hot tips turn out to be not so hot. And even if a stock was hot at one time, it might already have cooled off by the time an investor acts on the tip. But more importantly, long-term investors know that not all stocks are appropriate for their individual needs. Consequently, they train themselves to take a pass on today's hot stock tips.
They get the help they need. The investment world can be complex. It's not easy for most investors to analyze investment possibilities, stay current on changing tax laws, calculate their retirement income needs, balance their portfolio or do any of the many other tasks that go into successful investing. That's why long-term investors frequently turn to financial professionals for guidance and recommendations.
So, there you have it - a few of the techniques employed by many successful long-term investors. Why not put them to work for you, too?