Updated: Feb 11, 2022
It’s so cliché to hear others – especially financial service professionals – say “Just invest for the long-run, and you’ll be ok.”
It sounds almost too good to be true, doesn’t it? Almost as if, as long as you put your savings in a safe place, for a very long time, you’re guaranteed to come out on top.
Be careful with that assumption.
Investing for the long-run is something that financial advisors preach, most governments encourage, and all kinds of investors struggle with. But is the “long-run” and long-term investing something that should be practiced by all of us, all of the time? And what does “long-run” really mean, anyway?
I’m here to tell you that successful investing is not about long-term, short-term or any-term... It’s about “your-term”. And by that, I mean that your investment horizon should be based on your own age and your own personal objectives, rather than a one-size-fits-all time frame.
For example, if you're in your early 30s and your ultimate goal is to purchase your first home within the next 3 years, should you pour your lifetime savings into a “long-run” strategy? Or should you worry, instead, about short-term volatility and sequence of return risk over the next 12-24 months?
And what about older folks? How can you get an investor who is retired, over the age of 70, and going through her bucket list to think about “long term” investing? What if that person has a financial strategy that involves traveling the world with her spouse, or climbing Mount Everest (it’s been done before)? For that type of investor 10 years, or even 10 months might be a lifetime. And, depending on the state of her health, three years might pass-by in a flash or it might feel like an eternity.
You see, as much as time can be an ally and work in your favor (mostly thanks to the force of compounding), it doesn’t matter how long-term your portfolio is positioned to be, if you’re not able to meet your most precious goals.
So, by all means, don’t be myopic or short-term oriented. Stay away from day-trading and avoid the temptation of timing the market. There’s plenty of studies and evidence showing that you’re almost guaranteed to underperform most broad indexes this way. But keep in mind that “the long-run” can mean many (sometimes conflicting) things to different people, depending on where they are in their life, and what they want to get out of it.
Instead of investing for the “long-run”, invest for “your run”. In other words, run your race, not that of your neighbor, your favorite financial author, or any motivational speaker or financial pundit on TV.
Your financial plan and investment strategy should be personalized and unique, not generic. By definition, that means that it should be less about earning a specific rate of return, and more about investing with purpose!
And because it’s your journey, you will need to find your own rhythm and pace yourself. It’s ok to run, walk or even crawl, sometimes… as long as it’s at your pace, and on your terms. After all, there is no point in investing in the “long-run”, unless it’s about “your run”.