So You Think You Are a Long Term Investor

by financialmom on August 16, 2011

in Gambling, Investing, Money

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In volatile markets, such as we experienced last week, it’s easy to see who really is a long-term investor, because they act like a long-term investor.  I did a whole radio show on this topic last week – What Investors Should and Should Not Do in Volatile Markets, which I highly encourage you to listen to.

Are you a long-term investor, or are you really a short-term investor, speculator, or gambler in disguise?  If you are investing for retirement, and retirement is a number of years away, stop acting in volatile markets like you are a short-term gambler or speculator!   

Gamblers worry about how the markets are doing in the short term, as in every day.  They are looking for fast returns as quickly as possible, and market drops are a disaster.  Short-term gamblers bought fads like tech stocks in the 90′s, and buy gold right now. 

In volatile markets, I routinely hear “this time it’s different.”  What people are really saying is this: “This time is different; the markets are going to drop more than they ever did before; the global economy is worse than it’s ever been before in the history of the world; and I don’t see how we are ever going to come out of this.”  

If this is the way you are feeling right now, please take the time to educate yourself on the history of the markets.  Talk to your financial advisor.  It may save your sanity. 

Long-term investors understand short-term volatility in the markets is normal, market corrections will occur, and it is not any different now than before.  The event that started the slide downward may be different, but the results are the same.

Here’s what long-term investors do in volatile markets:

1) Sit on their investments.  If you have a well-diversified, properly allocated portfolio, sit on it! 

2) Call your financial advisor if you have questions about your investments.

3) Rebalance your portfolio.  Rebalancing sells some of the profits from your top performing asset classes in your portfolio, and invests them in the poorest performing asset classes.  It is necessary to do this, to maintain your portfolio’s original asset allocation.  It may make sense to rebalance your portfolio more often in volatile markets.

4) Check your diversification, if you are not sure what it is.  Well-diversified portfolios really shine in volatile markets. 

5) Keep investing!  This is exactly what an intelligent investors does – buys on the lows of the market.

Here’s what long-term investors do not do in volatile markets (or ever, actually):

1) Listen to the doom and gloom media, coworkers, friends, and family, unless they are a licensed financial advisor, and already successfully helping investors. Know your investment philosophy, and stick to it! 

2) Panic.  Panic is a by-product of fear.  Fear and panic are results of not being educated in how financial markets work.  If you are panicking, is it because you are taking too much risk with your investments? Of course, everyone is a risk-taker when the markets are going up! 

3) Call your financial advisor and tell them to “do something!”  Advisors who make changes in your portfolio, purely for the sake of doing something, are simply buying into your fear, namely the fear of losing you as a client.

4) Sell anything, unless there is a compelling reason to do so.  There are not too many compelling reasons.  One would be to cut your losses, and get yourself into a much better investment.  For most situations, selling on a market drop because you are scared, just equals locking in your losses.  Once you sell an investment, it’s a loss forever.

5) Market Time.  Market timing is what some advisors may try and do for you, and what many investors seem to think they can do for themselves.  They will get out of the markets, to “keep their money safe,” and keep it on the sidelines “until the market goes up again.”  Unfortunately, investors usually don’t even think about getting back in the markets until the markets are completely back to where they were before.  They lose out on all the gains to get there.

6) Get greedy.  Do not ever buy investments, and especially during volatile markets, with the promise of a quick, spectacular return.  This usually happens after investors experience losses.  Investors feel they need to do something to get back all the money they lost as quickly as possible. 

For more information on this topic, please listen to my Intelligent Investing radio show from Wednesday August 10, What Investors Should and Should Not Do in Volatile Markets.

New Profile Pic 2599R So You Think You Are a Long Term InvestorPamela Otten is CEO of Pamela Otten LLC, a Registered Investment Advisor. She loves to work with women business owners and entrepreneurs, and women in transition due to job change, death, or divorce. Pamela will help you set and reach your financial goals, educate you to understand your investments, and teach you how to do more charitable giving. Pamela is a Qualified Kingdom Advisor (www.kingdomadvisors.org), trained and committed to integrating biblical principles with her investment advice.

cc smallest So You Think You Are a Long Term InvestorPhoto Credit – higetiger

Financial Planning, Investment Advice, and Investment Management provided through Pamela Otten LLC, Registered Investment Advisor.

The opinions voiced in this material are for general information only, and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, please consult your financial advisor prior to investing.

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{ 2 comments… read them below or add one }

Lori August 17, 2011 at 12:29 pm

Yay, I can still call myself a long term investor. :)
Lori´s last [type] ..Family Camping: Make It Fun For Everyone

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Bill Fleischhauer August 17, 2011 at 9:52 pm

Pamela*** This is a Valuable article! Especially the Do’s and Don’ts** Well Done!

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