When you invest for the long term, you have a lot of time to deal with the effects of any market cycle on your portfolio.
One year, your returns may be low. Another year, these could be high. In a different year, the value of your investment may even drop. However, the historical tendency of many investments has been to perform well over time.
That’s why the longer you can keep your money in your investments, the better your chances are of reaching your financial goal.
Mathematically-speaking, interest is computed by multiplying Principal x Rate x Time.
This means that no matter how small your principal (P) is, and no matter how low the rate of return is (R), for as long as you’ve kept your money invested for a good amount of time (T), you’ll probably get a good figure.
In any sort of investing, choosing the right products and performing peso-cost averaging are essential for success. However, there’s another important factor that many people overlook when they put money in for the long term: Patience.
What patience does
When your investments aren’t performing as expected soon after you put your money in, you may be tempted to switch to a different product. However, that probably isn’t the right decision for a long-term approach.
This is because it will cause you to miss out on the times that the first product performs well. Also, the same thing could happen with the second product, and so you might move to a third product and so on.
Patience can keep all of this from happening. It prevents you from reacting on impulse and making decisions that might lower your profit potential. It also allows enough time for the market’s ups and downs to even out, hopefully ending with acceptable profits for you.
Remember, even the best funds and fund managers don’t perform at the top of their game all the time. A couple of underperforming months doesn’t mean that all your returns will be low, but you’ll need patience to really get the benefits.
Patience is not inaction
Patience in long-term investing doesn’t mean simply ignoring any performance drops. After all, not every performance issue is addressed by time.
There may be occasions when the best action is to reduce your investment in the product, or even transfer your money completely to a different product. However, making a proper choice takes analysis and time, and patience is needed for both.
Remember that there’s a certain amount of risk in any form of investing, and success is never guaranteed. This is true even if you stay invested in a product for a long time. Patience can just increase the chances that you will earn well from your investment.
Being patient, especially when it comes to investing also involves knowledge. People who tend to understand the market, their investment vehicle, and themselves as investors, tend to have more patience because they understand why they are making money, why they are losing money, or why they have yet to make money.