After the year we have had its easy to understand how investors may have become fatigued and disoriented. Taking a step back and looking at things over a longer time period can help to regain a sense of balance and perspective. The ability to look past today’s headlines is key to long-term investing. Over the ten-year period of 2010 – 2019, the market generated an impressive annualized return of 13.6%, but you would not have known it from the headlines.
With the election year fury reaching its apex, it is easy to believe that political outcomes in November will have a significant impact on your investments. The table below looks at how markets have fared depending on who controls the White House, Senate and House of Representatives. Interestingly the markets have done best when Republicans control Congress and Democrats control the White House.
Investment time horizon is a critical concept in building wealth. During periods of volatility and uncertainly, one of the biggest challenges for investors is sticking to their long-term plan. Every up and down swing creates strong emotional reactions and second guessing. Most investors have very long investment time horizons, typically decades or more. Investment managers also require long time horizons to deliver on their investment thesis.
Investors often fret about the market environment and ask if they should invest now or hold off for a better time. For long-term investors, making regular contributions is more important than when the contributions are made each year. The table below shows there is not much gained by perfectly timing contributions each year.
The market and economy have gone through unprecedented events with a global pandemic, the shut-down of economies, massive government intervention and dramatic market swings. In the wake, marketers and pundits are in full force touting recent short-term results along with market predictions and a slew of slick products to go with them. While things may have stabilized, there is still an abundance of uncertainty. Now is not the time to make dramatic changes to your overall investment approach. Taking a long-term perspective can help to avoid costly mistakes.
Now, more than ever, planning is a powerful tool to help investors succeed and achieve better outcomes. The table below highlights the benefits of planning taken from a study on retirement planning among Americans over age 50, over a wide range of market conditions. The results show that having and sticking to a plan results in three times the net worth when compared to those who don’t have a plan.