Strategies for Long-term Investing

In the economic environment investors have had to endure the last 4 years, it is a wonder any can look beyond their nose to see what the long-term investment future may look like. Many investors feel as if they are simultaneously juggling a bowling ball, a cat, and a lit firework and if they drop one their portfolio will suddenly disappear. Money managers and certified financial counselors are right there with them speaking as calmly and hopefully as they possibly can about staying focused in the markets without using manipulation or any other means that may land them in trouble.

The reality is that for now, long-term investing is the most sensible way to approach the markets right now. It is certainly a wise strategy for all ties, but especially now. As Warren Buffet said, and I paraphrase, “I never get into a market I cannot endure if it should close for five years.”

Perhaps the days of gravy will return when the economy stabilizes, but if the truth be known, it is not a bad time to invest. In fact, in August of 2012 over $34 billion in dividends were paid out by S&P 500 companies. It is predicted that an increase of 16% will be paid out over the previous year. Yes, corporate profits have been strong, but there is so much more to your investment strategy than an immediate payoff.

What is Long-term Investing?

According to Investopedia, long-term investing is “An account on the asset side of an investor’s balance sheet that represents the investments that they intend to hold for more than a year. They may include stocks, bonds, real estate, and cash.” Taking this a little further, long-term investing usually looks at least five years down the road.

Goals of Long-term Investing

Typically, most long-term investment goals are aimed at helping the investor achieve finances needed for retirement, college tuition, owning a business, and making a large purchase.

• Retirement: Of course, investors have their own personal reasons and goals for what they want to accomplish. In fact, under retirement, almost every investor will have their own unique thoughts on what retirement looks like and what they will want to do during retirement. Retirement may include having the home paid off, being debt-free, traveling, working on one’s golf game, starting a second career without financial concerns, volunteering overseas in an orphanage, or simply relaxing on a front porch with a glass of fresh-squeezed lemonade.

An investor who is 30 now and hopes to retire by the time they are 65 has 35 years to save. Most investment counselors will say someone needs a minimum now of at least $3500 a month in income to live modestly in a non-urban area today. In 35 years, they will need a monthly income of at least $12,500.

• College Tuition: The cost of college tuition has risen 1,120% over the last 30 years, according to a Bloomberg report. That would mean if things progress at the same rate, parents of a new child must save nearly $500,000 over the next 18 years just to pay for four years of college that now costs $10,000 a year. It is hard to imagine tuition reaching that unfathomable level, but the point is, long-term investing must also be smart as to be able to pay the academic costs that seemingly are out of control.

• Owning a Business: The downturn in the economy these past four years has prompted inspired people to take more control of their future as we have seen a wave of entrepreneurs enter the marketplace. However, most of these are really small companies doing less than $12,000 a year. They are more like second jobs and are subsidizing school sports, a second car, braces for teeth, or a family vacation.

However, others want something larger and are willing to pay for it. Whether it is owning a Subway franchise or two or more, a small boat tour company in Alaska, a chemical research and development start-up, something in technology, or a retail store, it takes capital and lots of it. Long-term investors understand how much it will take them to start-up or purchase the company they want to own and establish benchmarks along the way. Financing issues, finding the right tea to help you, hiring the right employees, location, marketplace, and more will all makeup how one goes about investing.

• A Large Purchase: There are as many large purchases in the mind of an investor as there are people. Houses and vacation homes, cars bought debt-free, weddings, boats, endowments and other financial gifts (see orphanage above), jewelry, travel, funds for grandkids, emergency medical savings, and more can all make up the designation for a large purchase.

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Three Strategies for Long-term Investing

Following are three strategies for you to consider when defining, planning, and executing your long-term investment goals:

1)      Safe Strategy: This is the strategy chosen by those who do not want to take risks. This will also at best grow an investor’s money the slowest. Just because it is considered “safe” does not mean it is impervious to failure. Usually, it means growth will be slowest and there will be many investors in it. It is tragic to look at your statement each month expecting some radical jump in value. Safe can also mean being in an investment like natural gas that will continue to be in demand and for which the resources are great. Index mutual funds and bonds are found here also.

2)      The Faucet Strategy: This is a strategy designed to provide a decent enough return that you will be able to draw out cash occasionally, like turning on and off a faucet, without hampering the overall growth of your investment dollars and longer-term plans. These require more aggressiveness than that of the safe strategy. Investments like these include balanced funds, gold, and silver, certain kinds of stocks, and real estate.

3)      High Growth Strategy: This is for those who are ambitious and want their money to grow as fast as possible and are typically seeking 12% or more in portfolio growth each year. This is achievable in some economies, but not necessarily now unless you have the brilliance of Warren Buffet. Who would not want these returns But they require much more risk and loss is not uncommon until one hit. “Gambling is not for most investors who are considering retirement, college tuition, mortgages, and more. A mix of sound investment combined with some exploratory capital may be wise as one’s portfolio matures,” says Chip Hutchison of the Hutchison Group Rock Hill, South Carolina.