Tips for Long-Term Investing: A Beginner’s Guide
The stock market crash had a positive side, too! It taught some nervous individual investors the advantage of staying in the market long-term instead of getting out quickly.
I was in high school when my aunt died in 2003, leaving me some money in a Roth IRA. At the time, my mom helped me invest the money, since I had no idea what I was doing. My parents had always told us about the importance of saving over spending, so I figured this money would be put away until sometime in the future when I would need it — either for buying a house or for funding retirement. I nearly forgot I had it, and it grew to about $11,000 by 2008.
As the stock market was crashing, I looked at the amount in my account dropping rapidly. While it took me a few days to sell, I ended up losing about $6,000 by the time the dust settled. As a college student making no money, that felt like a major loss.
Prior to my experience, I assumed that if you invest, you earn. I had no idea that you could lose money in the stock market.
After this loss, I was wary of re-investing. Why would I want to run the risk of losing money? Would it be better to keep my money in cash? If I wasn’t earning anything, at least I wasn’t losing anything, either, right?
Because I knew very little about investing, I decided to keep the amount mostly in cash. It wasn’t until a few years ago that I finally decided to dive back in and learn more about how to invest in stocks. I met with a few financial advisers, trying to figure out how investing worked.
Had I stayed in the stock market, with an annual average return of six percent, the Investor.gov Compound Interest Calculator estimates that I would only be about $500 ahead of where I am now. To be fair, that may not be entirely accurate because no one can truly know. But at least I feel better about my current portfolio. And while I still have a long way to go, I feel that I’ve learned a few tips for long-term investing that will help me become smarter about it.
Tips for Long-Term Investing
Long-term investments will fluctuate, and it’s important to remember that. I check my accounts once every quarter to keep track of what’s going on, but for the most part, I leave them alone. This has significantly reduced my anxiety about investing.
While I pay attention to the market, I know that some months I’ll lose money, and others I’ll earn money.
I’m also not dependent upon my investments for the next five years. This helps me keep calm, too. If I needed cash for a down payment or to send my kid to college, I’d use a different strategy.
With long-term investments, it’s important to diversify. Most of my investments are in mutual funds and exchange-traded funds (ETFs). This helps prevent the major losses that might happen if I invest in only one company. If I’m investing with one company and their stock goes down or they fold, I’m out of my investment. But with mutual funds and ETFs, I’m somewhat protected from that type of major loss because of the performance of other stocks in the group.
Now I know that even if there’s another crash, I should consider waiting it out — especially if I don’t need the money right away. Being secure in my investment strategy is important, and it’s good to re-evaluate my strategy on a regular basis. My immediate financial needs this year may not be the same as 15 years from now, but my long-term investment goals will likely stay the same for quite some time.