Here’s a simple way of looking at it: the more time you spend invested in the stock market and real estate, the more money you stand to make. But here’s the catch – we all run out of time at some point. If we don’t get to enjoy the fruits of our investments because our time ran out, all that effort and energy would have gone to waste. That’s a double whammy!
Take Charlie Munger for instance. He was passionate about investing till the ripe age of 99 – that’s pretty impressive. But he passed away with a net worth of about $2.3 billion. That’s not so impressive because he didn’t get to enjoy all that wealth.
Let’s talk about the S&P 500 now. If you look at its returns over different periods – 1 year, 3 years, 5 years, and so on up to 30 years – you’ll notice something interesting. In the short term, the returns swing wildly in both directions. But as time goes on, these swings become less extreme. The longer you invest, the less your average returns are, but the chances of not losing money increase.
After 15 years of investing in the S&P 500 (from 1926 to 2022), you’ve never lost money. After 30 years, the lowest return was 8% and the highest 13.6%. So, our goal should be to invest in the S&P 500 for as long as possible. At least 10 years, ideally more than 30.
Now let’s think about what happens when you age. Long-term investing is a great strategy when you’re young. But what if you want to enjoy life before the traditional retirement age of 65? Long-term investing might actually be a bit risky then.
Take me, for example. I’ll be 61 in 15 years. I’ll be sad because my kids will have likely moved out and I’ll be left reminiscing about the past with my wife. These 15 years won’t come back, which is why I’m trying to live in the moment. I don’t want to waste time doing things I don’t want to do.
But here’s the problem: I don’t have unlimited money, and I don’t have a steady income. So I have to invest carefully just to keep up with inflation. Providing for my family is a big responsibility.
I’ve made plenty of mistakes as a long-term investor. I’ve been investing in stocks since 1995. I’ve tried day trading too much, panic selling, and buying out of fear of missing out. I’ve made all the mistakes one can make. It wasn’t until my senior Managing Director sat me down and asked me why I was trading so much that I started investing for the long term. But then, I lost about 50% of my portfolio in the 2008 financial crisis. I should’ve been a short-term investor and sold everything in 2007!
Now, I don’t want to invest and not touch my money for 15 years. There’s a chance I won’t live till 61. I don’t want to die without having enjoyed my wealth. But I’m probably going to continue saving and investing for the future.
And you know what? It’s okay to stop investing once you’ve reached your goal. Sell your stocks if you’ve made enough to buy what you want. Same goes for selling an investment property. You should invest for a reason, whether it’s to buy a house, pay for college, buy a car, retire early or traditionally.
As you age, your investment time horizon should shorten. I believe it’s better to retire by a certain age rather than a certain financial figure. There’s always more money to be made, but time is something you can’t get back.
Your retirement age might change multiple times in your life. I wanted to retire at 40, but I managed to retire at 34 thanks to a severance package. Then, after having kids and facing a pandemic, I felt the need to make more money, so I started working again. Now at 46, I aim to retire again by 50.
But things aren’t easy. I see private tuition bills for my kids, rising healthcare premiums, and property taxes and maintenance expenses for my new house. My expenses are growing faster than inflation.
One thing that keeps me from spending all my money is my kids. I’m investing for their future because they can’t do it themselves yet. In 20 years, they’ll be glad I invested today.
So, are you a long-term investor? How many years do you consider as long term? Do you adjust your investment time horizon as you age? If you have kids, do you feel a responsibility to be a long-term investor?
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