Rule #4: Invest for the Long Term
Despite legends of vast fortunes made on one or two trades, most successful individual investors make their money over time. We believe the most consistently successful strategy for building long-term financial security is to own a well-diversified, quality portfolio – and plan to own those investments for the long term.
Stay the Course
Historically, equities – stocks and stock mutual funds – have
provided higher long-term returns than any other type of
investment. We know that past performance doesn’t guarantee you’ll
experience the same results in the future. However, we believe
equities are still one of the best ways to potentially build wealth
over time. When you invest in equities, you become a part owner of
those companies, and you share financially in their ups and downs.
If earnings and dividends grow, so does the stream of income you
receive. On the other hand, if the company’s growth slows or the
dividend is cut, your returns also can fall. Companies go through
various business cycles, so it’s important to maintain a long-term
perspective.
Time in the Market
We believe that to reach long-term objectives, including a
financially secure retirement, you need long-term, quality equity
and fixed-income investments. Yet when current events or economic
changes cause stock prices to change, many investors are tempted to
buy or sell on a short-term basis. That kind of thinking can
undermine your long-term success.
Don’t let short-term price considerations scare you away from a long-term value. If you invest in equities, a temporary price decline often creates an opportunity to add to your holdings at a lower cost. But remember, even if an investment has performed well in the past, if it no longer meets your long-term needs, it doesn’t belong in your portfolio.
Similarly, successful bond investing doesn’t depend upon predicting the future of interest rates. We believe that laddering quality bonds with different maturities is a better strategy because it creates a balance between the often-competing needs for price and income stability.
Rome Was Not Built in a Day
Most managers of successful companies don’t seek all of their
growth in one or two years. To achieve sustained growth, one of the
best strategies is to seek steady, reliable results over a long
period of time. Most individuals say they want the same thing from
their investments.
There are no guarantees when investing. But a buy-and-hold strategy is the best way we know to help build and preserve your long-term financial security.
Diversification does not guarantee a profit or protect against loss.
