There is one very important thing to understand when you are starting on your investment journey. It’s a marathon, not a sprint.
That is if you are going to use investments to build your wealth for the future. For when you retire. So you can live comfortably in 10, 20, 30+ years’ time.
This is what is known as having a “long-term mindset.” It’s important for one crucial reason – going short-term leads to mistakes.
Adopting a patient, disciplined approach pays off over decades, not months or years.
Once you begin investing with a long-term mindset, you need a strategy. A financial plan. To set financial goals.
(This money management tool is a handy resource for financial planning. [LINK])
But suddenly taking a swerve and going short-term can mess up your strategy. You start tinkering with your portfolio for “get-rich-quick” gains.
That would be a mistake.
So, it’s a good idea to remember this right away. Write it down. Remind yourself that if you start thinking short-term, it’s time to pause.
Read on now for more on the importance of the long-term mindset, and the investment mistakes to avoid.
Patience is a Virtue
Once you have assembled your portfolio of investments, it is often tempting to check your portfolio every day. Start doing that and you will discover that not much actually happens day-to-day. If you are going to have a peek at your portfolio, just spend 20 minutes. That’s all you need.
The reason being, obsessing over short-term fluctuations leads to emotional decision making.
That is Common Mistake #1.
Remember, it takes time to gain the ultimate benefits from your long-term investments. Start tinkering and you may well end up reducing the returns you could have enjoyed.
And you may lose out further if you have to pay a fee for adjusting your portfolio.
Don’t Panic & Sell When the Market Declines
Believe it or not, so many investors starting out with no education end up falling into the “buy high, sell low” trap. (Common Mistake #2).
Buying LOW and selling HIGH is the fundamental principle of investing. Not the other way around.
Just remember, price corrections and bear markets are normal parts of long-term investing. During downturns, sit tight. Stay invested.
The markets always bounce back. They have been doing so since the 1600s!
Basically, those investors buying high are hoping to make short-term gains. That does not fit in with your long-term strategy. Buying high is a result of being motivated by fear or greed. That can be triggered by the latest investment craze or fad.
Trouble is, once an investment becomes popular it becomes difficult to determine its real value.
Ignore Daily Financial News & Short-Term Noise
When you start taking an active interest in making investment, you will soon be overwhelmed by masses of trading and investing information.
There are so many news feeds online now, all offering “advice” on the latest market movements. Start paying them any real attention and you will soon find yourself lost in the hype, gossip and trends. The point is, following the herd and investing based on these trends affects the market price. Yet many do it.
This called trying to “time the market.” Trying to do that is Common Mistake #3.
Again, remind yourself to FOCUS on your long-term goals. Don’t get distracted by the 24/7 financial media.
This where you absolutely MUST do your own research. To make confident, rational investment decisions.
Don’t Take on Too Much Risk or Reach for Unrealistic Returns
By now you may be thinking, gosh there’s a lot more to this investing thing than I thought!
Yes, there is a lot to learn, which is why people seek out professional investing education and stock market courses.
Risk management is another crucial thing you must get familiar with before starting to invest.
Any investment comes with risk. There’s no way round that. So you need to work out what you comfortable risking. You don’t want to end up risking too much. But also you won’t make any real returns if you risk too little you won’t reach your financial targets. You might of course take the wrong risk all together!
So, levels of risk is an important concept to get to grips with.
Generally, you want to be looking for moderately higher returns. These require moderately higher risk. That again is linked to the long-term mindset.
Diversify Your Portfolio Across Asset Classes to Reduce Risk & Smooth Out Volatility Over Time
When you begin investing, you will hear the word “diversification” a lot. It is another essential for serious long-term investors. Because you are never going to achieve your financial aims with just one, two or three assets.
You need a whole basket! And like shopping at the grocer’s you want to load your basket with different products.
The advantage of a generous portfolio is that if one asset dips, another will profit. Plus, you can never control or predict what returns will come your way. Also, there will be varying levels of risk with each asset you choose.
But you may have the “probability” that an asset will do well if you have done your research right.
That’s not to say you want to go crazy and have too many assets that you become overwhelmed managing them all.
It’s about achieving a nice, consistent balance.
Be Patient & Think in Terms of 5, 10, 20+ Year Periods
Investing reaps reward for those with long time horizons. Stay committed for the long haul and enjoy the “miracle” of compounding.
If you are not sure what that is, check out this inspirational compounding interest calculator.
As you will see within a few clicks, compounding is a phenomenal freak of mathematical nature.
Factoring in compounding is a great way to set your financial objectives and get an idea of the potential size of your pot in the years’ to come.
Just don’t touch investments during that time!
“If you don’t know where you are going, you will probably end up somewhere else.”
That is a quote attributed to baseball legend Yogi Berra. It is a perfect one for all investors to remember.
That’s why it all start with the long-term mindset. Investing success depends on patience, discipline and persistence over long periods.
Stay focused on your goals, and they will have greater chance of success.
Yes, investment management is a discipline. But it’s not a complex one to learn.
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