You will need to determine what the long haul
means to you after identifying yourself as a long-term investor. You are a long-term investor by default if
you have an IRA or 401K. You will then
need to establish your investment goals, management and exit strategies, and
your tolerance for risk.
You can establish your risk tolerance by
determining a maximum financial-loss threshold where you will protect and
preserve the remaining balance of your long-haul investment capital.
Would you hold on to a
long-term investment through multiple years of losing 20%, 30%, 40%, 80% or
99.9% of the price you paid for
your investment? Where exactly would you
draw the line and abandon ship?
Your investment goals can be nearly limitless,
from saving for a home, making a major purchase, securing a comfortable
retirement or preserving the purchasing power of your life savings. The most basic goal in long-term investing is
to make your money grow.
More importantly than
merely increasing in value, your investment should at least keep pace with the
cost of living. This goal is essential
if you wish to preserve the purchasing power of your hard-earned savings.
Many investors define
long-term investments as an account on the asset side of their balance sheet
that represents the investments they intend to hold for more than a year. However, most long-term investors look at least
five years down the road.
Long-term holdings may
include but are not limited to stocks, bonds, mutual funds, exchange-traded
funds, real estate, and cash.
Gold and silver have become increasingly
popular assets since the beginning of the 21st century. These assets have been relatively profitable
and are no longer reserved only for wealthy investors.
Gold and silver bullion fall into the
all-important tangible-asset side of the account ledger. Physical possession of these hard-money assets
bears no counter-party risk. The long-term
management and rebalancing of these tangible assets is similar to that of
managing other long-term assets.
The Standard &
Poor's 500 is the quintessential performance benchmark for the vast majority of
investors and professional money managers on the equity side of the account
ledger.
Professional money managers strive to
outperform the S&P 500 year in and year out, decade after decade. The overwhelming majority of professional
stock pickers who manage vast sums of client money repeatedly fail to match the
long-term performance of the S&P 500.
It's no surprise that legions of individual
investors place their long-term investment bets directly with the S&P 500
index, given such influence. They do so
via index funds and ETFs.
These investment vehicles closely mirror the
performance of the S&P 500 and carry far lower expense ratios than
specialty or sector funds. Index funds
and ETFs guarantee that the holders of these funds will outperform the majority
of professional money managers.
These funds sound like they can't fail except
for one rather important caveat. How
would you feel if the S&P 500 lost 60% of its value over a two-year period,
as it did from 2007 to 2009? Even though
you may have outperformed the majority of professional money managers, how good
are you going to feel about this accomplishment given the magnitude of losses
showing in your long-term investment account?
Long-Term
Investing = Investing in Long-Term Trends
Simplifying the concept of long-term investing
in terms of investing in trends makes it clear that investing is not about the
over-hyped non-strategy of “buying and holding" for the long haul. Long-term investment is about buying and
holding on long-term uptrends as long as they last. You must then stand aside or sell short amid long-term
downtrends as long as these trends last.
When it comes to long-term investments, I find
it rather interesting that the mainstream strategy appears to rely exclusively
on shifting bullish long exposure from one sector to the next.
Such logic presumably relies on the fallacy
that a bull market always exists somewhere.
However, finding these bull markets can be quite a challenge during poor
economic periods.
Click here for graphics that will assist you in answering critical
questions to help you determine the suitability of a simple, effective
solution for achieving your long-term investment goals.
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Indoctrinated by mass media only to buy, how
will the average investor determine where to find the ever-present bull markets
espoused? I suppose you can pay someone
to do it for you and hope that the person you hire is not one of the
professionals who fail to outperform the S&P 500.
You rarely hear mainstream investment advisors
making suggestions to “stand aside” or “move-to-cash” as a viable option for
long-term investors. Forget about these
advisors ever suggesting that selling the market short might be a viable
long-term investment tactic; that would be blasphemy in their eyes.
What happens to this sector-rotation thesis
when all markets move in the same direction as they did throughout the 2007 to
2009 period? It fails miserably, and
everyone “holding” goes down with the ship.
The only strategy guaranteed to work in this case is to be out of the
market entirely or to be short if you are so inclined.
Keep
It Simple
Why not just stick with the tried-and-true
S&P 500 index, but with the provision that you will only stay invested if
the long-term trend is bullish. This strategy allows the vast majority of
investors to remain invested instead of continually searching for elusive bull
markets when the pickings are slim. The trend is your friend until it’s
not. Your objective should therefore be
to stay with the trend until it changes.
This strategy does not require long-term
investors to shuffle asset allocations and rebalance portfolios every time the
wind blows. These investors have a clear
objective and the tools to reach it.
They also have the ability to step aside and take their chips off the
table or sell the market short if the S&P 500 shows early signs of a
long-term downtrend.
Timing
the Markets vs. Trend Investing
These strategies are theoretically distinct,
although they are essentially the same in practice.
The conventional wisdom is that no one can
time the markets. This is true if you
define "timing the market" as getting in at the very bottom and
getting out at the very top. Of course,
this is impossible.
However, you can determine the right time to
get in and get out by observing and reacting to the status of the long-term
trend. This definition of timing the
market exemplifies “trend investing,” which allows you to time the markets
effectively and consistently.
Conventional methods of investing for the long haul are non-strategies riddled with inherent risk. In stark contrast, investing in quantified long-term trends is the simplest, most effective and practical solution for ensuring your hard-earned savings show above-average performance over the long haul.
Click here for graphics that will assist you in answering critical
questions to help you determine the suitability of a simple, effective
solution for achieving your long-term investment goals.
|
Conventional methods of investing for the long haul are non-strategies riddled with inherent risk. In stark contrast, investing in quantified long-term trends is the simplest, most effective and practical solution for ensuring your hard-earned savings show above-average performance over the long haul.
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