Investing for the long term

As the director of wealth at North Advisory, I liken an investment strategy to aging fine wine, raising children, or planting a garden. The plan requires time, patience, and nurturing. If you want to maximise the wine, you can’t stick the cork back in the bottle, uproot your child after 1 or 2-speed humps, or be yanking out plants every time the weather turns a bit nasty. It needs to grow and build resilience. You’ve got to commit for the long haul, give it some love, and trust that it’ll grow strong in the end. That’s why a long-term outlook is key to building wealth—stick with your investments and let them work their magic over time.

The problem is that human instincts can get in the way. Many of us want to time the market perfectly, buying when things are low and selling when they’re high. But honestly, that’s a lot trickier than it sounds. A better strategy is to buy and hold—invest in good-quality assets and just let them ride, no matter what the market’s doing.

We tend to freak out when the market dips and feel overconfident when it surges. It’s natural, but it leads to the exact opposite of what you should be doing: buying high and selling low. The reality is, if you try to time the market, you’re playing a risky game. You’d have to get it right not once, but twice—guessing when to sell and when to buy back in. It’s not impossible, but research shows it’s better to stick with a long-term plan.

Let me share some numbers to bring it home. Bloomberg did a report on what happened to folks who bailed on their investments during the early days of COVID-19. If you cashed out your balanced portfolio on March 31, 2020, and then reinvested three months later, you’d be down 10% compared to if you’d just stayed put. And if you waited even longer, say until the start of 2021, you’d be nearly 20% worse off. Ouch, right?

Here’s another stat from Morningstar that really makes the point. The ASX 300, a major Australian stock index, went up 121% over the 10 years leading to May 31, 2023. But if you missed the 20 best days during that period, your return would only be 8.1%. That’s a huge difference. It’s like trying to skip out on a few bad days and missing the best ones too.

And don’t forget, the market’s top and bottom days tend to be pretty close together. It’s almost impossible to be in the right place at the right time every time. So it’s better to stay invested through the ups and downs. In fact, even buying at record highs can be a good move because markets generally keep climbing over time. It’s like they say: strong performance leads to stronger performance.

But the big takeaway here is this: even if your timing is off, it’s still better than not investing at all. Waiting on the sidelines can be a bigger mistake than getting in at the wrong time. So, if you’ve been hesitating, now’s the time to start.

I get it—markets can be scary, especially with all the geopolitical turmoil going on. But emotional decisions can cost you. When things get shaky, people tend to panic and sell off their investments. That’s why it’s crucial to have a solid risk profile and a long-term financial plan. It helps you stay grounded when the market’s doing its rollercoaster thing.

So, next time you’re tempted to pull out your investments or second-guess your strategy, just remember to think long-term, stick to your plan, and trust the process. It’s the best way to grow your wealth.

An adviser can help remove emotion from the investment process and ensure that decisions are made in accordance with your risk tolerance.
When your portfolio is inconsistent with your risk tolerance, you’re more likely to lose sleep and make poor investment decisions driven by emotions. Staying the course is the best way to build wealth; you have to ride through the bad times to enjoy the good times.

A long-term outlook is essential, even for retirees who may live 20 or more years in retirement, as this gives time for investment markets to recover from nasty shocks and investment values to build.

Cayle Petritsch is one of Australia’s leading wealth management and investment advisors, Cayle and his qualified and experienced team ensure clients experience peace of mind, financial security and personalised service that puts their interests first.

North Advisory offers businesses affordable and flexible bookkeeping services, comprehensive business tax advisory, and wealth management services. Contact our team today for a no-obligation discussion.