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Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.


Topic: Wealth Management

Opting for a long-term vs. short-term investment approach will have a big impact on your returns. Here’s why

long-term vs short-term investment

Taking a long-term vs. short-term investment approach is a big decision for investors. Here’s why we think a long-term philosophy will work better for you

Do you understand the value to your portfolio of long-term vs. short-term investment practices? There is no denying the immediate appeal of taking a fast profit. However, most successful investors find over long periods that much of their profit comes from a handful of their best investments—stocks that went up much more than they ever expected. If you are too quick to take profits, you’ll wind up selling your best picks when they are just beginning to rise.

So, while short-term investment decisions can look like the best way to profit in the stock market, we feel that a better strategy by far is to buy top-quality stocks—stocks that will gradually accumulate stock market profits over decades. And because you’re investing for a longer period of time, short-term market fluctuations will have very little effect on long-term gains.

Invest in your Financial Future for FREE

Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor.

Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.


Find out how a long-term vs. short-term investment can impact losses for investors

Studies by the Dalbar organization show that if investors do a lot of in-and-out trading, they routinely make only about one-third of the return they could have earned with a simple buy-and-hold approach.

Here’s an investment saying you should always keep in mind: “If it was easy to predict which way the market will go, why would anybody work?” In fact, it’s hard if not impossible to consistently profit from short-term trading. That’s primarily due to the large random element in short-term market trends.

Long-term investing is different. Over long periods, the total return on a well-diversified portfolio of high-quality stocks runs to as much as, say, 10%, or around 7.5% after inflation.

Long-term investment returns aren’t built by aiming to make a fast dollar, or by profiting from inside information. They are built over time, and most importantly, by learning how not to repeat the market mistakes of the past.

Taking advantage of a compounding strategy can be considered one of the best long-term investment plans. This tip is especially important for young investors to learn. Benefits apply to both stocks and fixed-return, interest-paying investments like bonds. When you earn a return on past returns, including reinvested dividends, the value of your investment can multiply. Instead of rising at a steady rate, your portfolio will grow at an accelerated rate.

Understand long-term vs. short-term investment strategies for a comfortable retirement

When it comes to retirement, you should be long-term focused, which takes a lot of the guessing and game playing out of the equation. The best retirement plan you can have is to start saving as early in your working career as possible. You then invest a steady or rising amount of that money in the stock market every year. When you follow this plan, you automatically profit from dollar-cost averaging. You will have bought more shares when prices are low, and fewer shares when prices were high.

Additionally, Registered Retirement Savings Plans (RRSPs) are a great way for investors to cut their tax bills and make more money from their retirement investing. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free.

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

Keep to your conservative short-term investment strategies even if you suffer unexpected losses

To succeed as an investor, you need to get used to the idea that short-term declines come along unpredictably. And just as important, you need to be careful that those short-term fluctuations don’t prompt you to make ill-advised short-term investment decisions—decisions like getting out of the market in anticipation of a further decline and then missing out on a big rebound.

For some investors, when they do experience losses in a downturn, they make the mistake of trying to quickly reverse the losses they experience. It’s a natural temptation, especially with younger investors.

You may have noticed a lot of ads for courses in online, short-term stock trading or foreign-exchange trading. The promoters are aiming their pitch at inexperienced investors, including those who have suffered losses due to market volatility. These investors may be inclined to follow the example of desperate gamblers who bet their last few dollars on a handful of lottery tickets, or a long shot at the track or the casino. But that’s a wasteful example to follow.

Overall, you can improve your returns and cut risk if you structure your investing around our three-part approach at TSI Network: Invest your money mainly in well-established, dividend-paying companies. Spread your investments out across most if not all of the five main economic sectors (Manufacturing & Industry, Commodities & Resources, Consumer, Finance, and Utilities). Downplay or avoid stocks in the broker/media limelight.

When do you feel a short-term investing approach can fit into a conservative investing strategy?

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