…people who are comfortable with their investments will, on average, achieve better results than those who are motivated by ever-changing headlines, chatter and promises.
Warren Buffett (2021 Annual Letter to Berkshire Hathaway Shareholders)
What’s the #1 piece of advice I give to all investors? Focus on the long-term. If you do nothing else with your investments, hold them for a long time, or as long as you can. As I’ve mentioned previously, holding your investments for a long time gives you better odds of success and allows the market to work for you instead of against you.
Take a look at this chart showing the range of returns for the US stock market over various time frames:
Historically, if you hold your investments for a long time, you can shrink your chances of incurring a loss. In fact, there have never been any 20 or 30 year periods where the US stock market has experienced negative returns. Over time, the “noise” of the day-to-day movements in the market gets canceled out. And the long-term investor is left with the trend of more efficient productivity, better technology, and increasing prosperity, which are the best drivers of economic growth and stock market returns.
How to focus on the long-term
So how can you focus on the long-term? Get comfortable with your investments. If any of these situations apply to you, then consider making some changes:
- Don’t understand how your investments work or what you’re invested in
- Get nervous every time the market drops
- Can’t stop reading the headlines or listening to the talking heads on TV
How to get comfortable with your investments
And just how do I propose that you get comfortable with your investments? Start by making a plan. It’s important to understand your current situation and have an idea about out where you want to go.
Here are some other ideas to implement:
- Spend within your means
- Set aside an emergency fund
- Avoid individual securities
- Invest in passive, well-diversified investment funds
- Reduce investment costs
- Optimize for taxes
Do I have any other great pieces of advice? Read Warren Buffett’s annual letters. You’ll learn more about investing and business in those letters than almost anywhere else.