It’s a fairly predictable pattern: When the stock market rises, more people invest, but after a large-scale drop, many of these same people head for the exits. But by staying out of the financial markets, and only putting their money in “safe” vehicles that offer few or no growth prospects, are they really helping themselves? Here’s the bottom line: If you’re going to make progress toward your long-term goals, you have to become a long-term investor. But how?
To begin with, you need to understand that long-term investing involves accepting inevitable short-term price swings. You may not like seeing those sharp price drops, but it will help your outlook greatly if you can keep them in perspective. Studies have shown that the longer you hold your investments, the less impact market volatility can have on them.
So, to reach that point where the market’s ups and downs have less of a cumulative impact on your holdings, consider the following actions:
• Only invest money you won’t need for a long time. If you can tell yourself that the money you are investing today is money you won’t really need for 20 or 30 years, you’ll be better prepared, psychologically, to get through the down periods of the financial markets.
• Keep your focus on what is most important to you. If you can visualize your long-term goals, you’ll find it easier to keep working toward them.
• Don’t spend excessive time reviewing your investment statements.
Short-term price drops are not pleasant to experience. However, you can help yourself become a better long-term investor by following the above suggestions, so put them to work soon — and stick with them.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.