Long Term View

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#10 - Stay with a long-term perspective.

The earliest saved dollars have the most time to compound and can stand the most year-to-year uncertainty along the way. The stock market in the past 10 years has shown us that the market moves upward but it also goes down. But, market declines are not a reason to quit investing.

Just like a tree, the market does not move upward in a straight line but it does trend upward over time and the keys to success are time and compounding. The longer you stay invested, the faster your money will grow. It is the most important factor in investing. It allows “compounding” time to work its magic.

Start early. The first dollar you invest will have more time to grow and will be worth far more than the last dollar saved. A dollar saved today is worth twice or three times as much as a dollar saved 10 years from now. An 8 percent return on your investment doubles your money in 9 years. A 9 percent return doubles your money in 8 years.

A dollar saved today will be worth $10.06 in 30 years, assuming a modest 8% annual before-tax return (the historic average for a conservative mix of stocks, bonds and cash). In 10 years, a dollar invested at 8% will be worth only $2.16. Late starters have to work harder.

The mad race to “beat the market” all the time is the main reason so few people beat it at all. That is why a long-term perspective gives the individual investor an edge over the Wall Streeter. It’s not in getting rich quick, but in meeting the long-term goal of getting rich slowly.

In the short run, the market can be deceptive. In the very long run, the market has proven to be almost boringly reliable and predictable. The longer the time period over which investments are held, the closer the actual returns in a portfolio will come to the expected average. The hare does not always beat the tortoise.