WRITTEN BY ANDREW ROTH, OPERATIONS MANAGER
What is long-term? Is it one year, five years, or ten years and beyond? Time plays a vital role in the investment and money management decisions that people make. The determination of when we need access to certain funds affects what we choose to do with our money.
I know what my mortgage payment is going to be every month for the foreseeable future. The next year of mortgage payments are accounted for and I need those liquid. I don’t want the mortgage money to fluctuate. I want that money in the bank so I don’t miss my payments. On the flip side, as I enter my third decade on this earth, my retirement funds are invested and aggressively participating in global markets. I have twenty-nine more years until I can touch those assets without paying a penalty. That’s money I have invested for my “long-term.”
How might this be relevant to you? The average reader of The Envisionary is slightly more mature than I am. What if you’re in your fifties or sixties? Even if you’re approaching retirement, retirement itself might be a 30-year period of your life. Based on ever increasing standards of care and medical advancements, more and more people are at least considering what their financial plan might look like with longevity into their 90s. Beyond our own mortal concerns, what if planning involves legacy considerations for children or grandchildren? Long-term may mean beyond our own lifetimes.
Because of these considerations, it’s a good idea to remind ourselves of the benefits of a long-term outlook. Tune out the noise of day-to-day distractions, geopolitical risks, domestic political crisis du-jour, the price of oil, interest rates, what the Fed is doing or isn’t doing, and just know that the reason we’re investing might still be years or decades down the road.
Innovation and economic growth happen at a near glacial pace compared to the 24-hour news cycle that seems to dictate the world around us. Consider the fact that fifteen years ago smartphones were a novelty and reserved for only the most adventurous consumers or money-is-no-object businesspeople. They now facilitate global commerce. Twenty years ago, who would have predicted that a small online bookseller would eventually transform retail, at the same time making a host of specialty products available to consumers at the touch of a button? Thirty years ago, GPS technology was reserved exclusively for our Department of Defense. Today, most people can’t find their way to a new restaurant without it! Forty years ago, the Internet was connecting a handful of research universities and Detroit-based car companies were being challenged by a few diminutive cars imported from Japan and South Korea. Today we’re all beneficiaries of better products and more choice through competition. If we went through this historical exercise decade-by-decade starting with the 1970s, we’d be talking instead about spaceflight and satellite communications, commercial aviation, television, and mass media.
Investing for the long-term means we need to try tuning out day-to-day distractions so that we can benefit from the rising tide of innovation that happens slowly, unevenly, and sometimes imperceptibly behind the scenes. Innovation, consumer preferences, and demographic growth have very little to do with ongoing political scandals, overseas dustups, or interest rates. Global commerce marches on as consumers benefit from advancing technology and innovation and companies take risk. When those companies are successful, we all have an opportunity to profit.
None of this comes with any certainty—other than the fact that along the way there will be bumps, scares, and even recessions. For these reasons, once short-term needs are accounted for, diversification, appropriate risk management, and “keeping your eye on the prize” are all paramount. The next time we get anxious about what we see or hear in the media, tune out the noise and keep your eyes on the horizon.