When it comes to investing your hard-earned money, the number of options available could be overwhelming. We often hear from members that they have reservations about investing long-term. We know the decision to lock that money away for long periods of time can be daunting, but there are many benefits to investing long-term.
Let’s debunk some of these myths/fears that hold you back from long-term investments:
1.“I am afraid of losing all of my capital if the market crashes.”
When investing long-term using mutual funds, the chances of losing everything is very, very low. Yes, there is a risk of losing SOME money, but you won’t lose everything.
There are no guarantees when investing with mutual funds, but over time you should have confidence that you will have a positive return if you have chosen a diversified portfolio (more on this later) that has a proven track record.
2.“I won’t be able to access my money in the event of loss of work, injury or even retirement.”
There are some investments like GIC’s and real estate where liquidity would be a problem, but with mutual funds or stocks, liquidity is not a problem. However, if you are forced to liquidate, you might be selling at a down-time for the markets, which might reduce your return.
3.“There’s too much risk involved with a long-term investment.”
There are risks with every type of investment, long-term and short, so people shouldn’t shy away from long-term investments. Generally speaking, the higher the potential return of an investment, the higher the risk (of course this can’t be guaranteed). Always pay attention to risk as well as return. If you focus only on achieving the highest possible return, you may not recognize the risk you are taking. Ask your financial planner to help you understand and evaluate risk.
Although there is risk involved with every investment, there are two main ways to limit the risk:
The more diversification you have, the better. By diversification, I mean that you are invested in multiple geographic regions and multiple sectors of the markets. In simple words, don’t put all eggs in the same basket.
Diversification allows you to reduce the risk of your portfolio without sacrificing potential returns. For example, If you’ve invested $100 in 50 different options equally, even if two options go down due to market fluctuations, you still have profit being drawn by the other 48 investment options. You cannot completely eliminate all investment risk from a portfolio, but with diversification, you can minimize the risk.
The longer the time horizon, the better chance you have at being able to withstand the ups and downs of the market. If you want to realize your long-term goals like retirement, you need to invest for the long-term.
For example, if you want to retire at the age of 60 with a monthly income of $5,000, there is a high chance that if you don’t invest for the long-term, you won’t earn enough of a return on your portfolio to meet that goal. You would have to either work longer and/or lower your monthly income goal.
Deciding what investments you should look at comes down to your goals, your time horizon, investment objectives, investment knowledge and amount of risk you are willing to take.
At Westoba, we have a number of options for long-term investing including most mutual funds available that focus on managed portfolios and private pools. Once we discover what type of investor you are by finding out your time horizon, investment objectives, risk tolerance, and net worth, we can recommend a portfolio for you. Understanding investing is so important and quite often it is very beneficial to speak with someone who can help you understand all there is to know. Westoba Financial Planners can help guide you through the rough waters of the investment market – so let’s talk!