Short-term vs long-term investing

There has been a lot of attention on investment markets during 2020, as the world has experienced some of the most dramatic changes in over 100 years.

While economies around the globe have been impacted by the COVID-19 pandemic, global markets have captivated many new investors. For some, the idea of buying and selling shares over the short term is an attractive way of potentially boosting their wealth. If lucky, they might be able to turn a small investment into something substantial. Plus, there’s an element of excitement and maybe even fun in chasing the dollars.

But here at First Financial, we believe that the key to successful investing is maintaining a long-term view. The short term might be a thrill, but long-term investing provides a more stable, consistent approach to securing your financial future.

A voting machine

A voting machine

There is a famous quote from Benjamin Graham, one of the investing world’s original mentors, that says:

“The market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.

Hence the prices of common stocks are not carefully thought out computations, but the resultants of a welter of human reactions.”

While this quote was first published in 1934, its truth remains the same decades later. Stock price fluctuations and the popularity of certain companies are a reflection of human choices. And human choices will always have an element of emotion attached to them.

Renowned investor Warren Buffet believed this quote so aptly described the market that he referred to it in his own writings:

“As Ben Graham said: ‘In the short-run, the market is a voting machine — reflecting a voter-registration test that requires only money, not intelligence or emotional stability — but in the long run, the market is a weighing machine.’”

Long-term investing

Long-term investing

It can be difficult to remove emotion when monitoring the market and watching your investments, but it’s important to keep a level head and think like a smart investor. At the core of any sound investment strategy is the focus on value and committing to the long term, because this is where key advantages lie.

One of the most important elements of long-term investing is leveraging the benefit of compound earnings. When your investments are producing positive results, one of the best ways to maximise your wealth building capacity is to reinvest the returns. If you don’t require all of the income generated by your investments for day to day living expenses, it could be a wise choice that supports your financial security in the future.

Of course, blindly reinvesting doesn’t make sense… more of the same isn’t always the best answer; instead, opportunities should be taken as they present themselves.

Each time you reinvest, you are building your capital, and over time the compounding effect will make a significant difference to the value of your overall investment portfolio.

Ignore the noise

Ignore the noise

The 24-hour news cycle is impossible to avoid… and this year we’ve had an overload of constant information. Market dives, recession, rebounds and everything in between have certainly given us cause for concern. But it’s important to acknowledge that a lot of the news is really just noise.

Try to remember that markets will react to breaking news immediately, meaning prices are affected quickly.

So, the chances are that by the time you’re reading about it, the markets are already onto the next event. If you act on news that’s already priced into markets, it can be counter-productive as a long-term investment.

Professional financial advice

Professional financial advice

The First Financial Investment Philosophy is all about securing your future. We have an innovative and unique investment strategy that consistently delivers great long-term outcomes because it focuses on building a portfolio that is relevant for your time of life, based on your current circumstance… and adjusted for your attitude to risk.

If you’d like to find out more about how we can help you build your wealth and support the retirement lifestyle you deserve, please contact our team today.

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