Long Term Investing – How to make it simple
The quintessential of long term investing is to be attentive to factors that we can control, instead of being led by market’s short term direction or chasing after a rumoured hot tips. As an intelligent investor, we need to comprehend that making an intelligent fund or stock selection involves assessing its risks, cost and time required to generate a return instead of just engaging in crystal-balling its future returns.
Time is Money
Allow your investment to grow with time. Time is indeed our biggest ally or foe (if we squander it). Start our investing habits as early as possible. Begin in the early 20s if you can. But if you are not that young anymore, it is never too late to start either.
Imagine putting in an investment of RM10,000 at age 20, and earn an annualised return of 8%. By the age of 30, RM10,000 would have grown to approximately RM22,000. Leave it there for another 10 years, at age 40, RM22,000 would be approximately RM48,000.
Compounding effect is a miracle worker. Its best friend is time. Allow your money plenty of time to reap the benefits of the compounding magical wand. Start as early as possible.
Many investors lament that they got ‘burnt’ by the market. This is simply due to investors deviating from the long term investing principles. Many simply chase unrealistic returns through short term speculation. This short term greed is costly.
Hence, for our investment to grow healthily, there are a few principles to keep in mind.
- We must INVEST. The worst risk that can lose us our money is not making it work harder for us. Inflation will erode the value of our money.
- TIME is our ally (or foe). Start as early as possible. Let the effect of compounding works its magic for us.
- Take EMOTION out of the equation. Be objective in our investing decisions. Be realistic about our returns expectation. Don’t follow the herds. Warren Buffet once said be greedy when others are fearful, be fearful when others are greedy.
- Do your homework mathematically. Track your investment expenses such as sales commission, transaction cost, advisory charges etc.
- Just stay simple. We don’t need to be a rocket scientist and complicate matters. Know our investing objectives, time horizon and expected returns. With these, asset allocation becomes simpler, either Equities, Bonds or Money Market etc.
- Stick to the plan. Though periodically portfolio re-balancing is required, but stick to the overall plan.
Source: Common Sense on Mutual Fund – John C.Bogle