If it’s time for you to pursue or perfect investment strategies to last a lifetime, then it pays to go back many, many lifetimes to Titus Maccius Plautus. The Roman comic playwright, who lived in the third century B.C., is a favorite source of wisdom for Thomas Sudyka Jr., president of Lawson Kroeker Investment Management in Omaha, Nebraska.
“A quote attributed to Plautus is one we use and believe strongly in: ‘In everything the middle course is best: All things in excess bring trouble to men.’ Investment, as in most aspects of life, requires a balance,” Sudyka says.
Balance also serves as the ideal metaphor for long-term investing. Needs change over time and shortcut stratagems that may work one year can prove obsolete, and even costly, the next. We asked investment experts to weigh in on some of the soundest strategies to use throughout your life.
Invest in what you can understand. Ignorance is never bliss when betting on a particular sector or company over time. Otherwise, you may as well play the slots in Las Vegas. “If you don’t understand the business you invest in, you’re going to be highly unlikely to discern the noise from truly meaningful information that should factor into your decision-making,” Sudyka says.
Start investing as early as possible. The longer money remains invested, the more potential it has to compound and grow. “Investors who start early, practice patience and stick to a long-term investing strategy often see the best returns and financial success,” says Colton Dillion, chief innovation officer at the Acorns online investment site. Case in point: Someone who contributes $1,000 into an individual retirement account from ages 20 to 30, and then stops, has a big edge over someone who starts at age 30 and invests $1,000 a year for 35 years. Assuming a 7 percent average annual return, the first person will have $168,515 at age 65, and the second will have $147,914.
Put a 401(k) match into your mix. It’s hard to believe people turn down free money that grows with time. But three in 10 workers with access to an employer match in their 401(k) fail to participate, according to the U.S. Bureau of Labor Statistics. “If your employer has a matching contribution inside of your company’s plan, make sure you always contribute at least enough to receive it,” says Kevin Meehan, regional president for Chicago with Wealth Enhancement Group. “You are essentially leaving money on the table if you don’t take advantage of the matching contribution.”
Set up and stick with sound cash-flow management. “There’s no other element of investment planning or portfolio management that’s more essential over the long term,” says Jesse Mackey, chief investment officer of 4Thought Financial Group in Syosset, New York. The key is simple yet crucial. Automatically invest money during your working years – each month at the very least. “Simply adhering to the cash-flow plan, while making reassessments as life progresses and needs change, will put an investor 90 percent of the way toward achieving their goals.”
Separate emotions from objectives. If you treat an investment possibility with the same partisanship as a sports team fan (or hater), you’re setting yourself up for trouble. “Separating your emotional involvement with a security from the purpose of its ownership will lead to better overall judgment and performance,” says Kenneth Hoffman, managing director and partner at HighTower’s HSW Advisors in New York City. “The more open-minded you are to thinking about investments in a new light, the more likely you are to invest in something undervalued.”
Turn discretionary spending into investing. Those who delay investing for years often confuse needs with wants. “Cellphone bills, cable TV packages and automatic services of all kinds gradually become necessities, and the would-be investor never jumps out,” says Stig Nybo, president of U.S. retirement strategy for Transamerica Retirement Solutions in San Francisco. “Investing takes discretionary income, and discretionary income takes discipline. Question those things that have become the norm but may not be necessities.”
Put investments and cash reserves in separate buckets. The biggest risk in investing involves needing your money at the wrong time, says Harold Evensky, a professor of practice in the personal financial planning department at Texas Tech University and chairman of Evensky & Katz/Foldes Financial Wealth Management in Miami. “By balancing any funds you’ll need in the next three to five years, or roughly an economic cycle, between a money market account and high-quality, short-term bonds, you won’t have to sell your investments at a loss. You’ll have liquid funds available when you need them, even if the market has crashed.”
Make stocks a cornerstone of your strategy. Zack Shepard, vice president for Matson Money in Phoenix, unabashedly calls stock investments “one of the greatest wealth-creation tools known to mankind. Investors need them in their attempt to grow their portfolio and outpace inflation.” Even with some moribund stretches lasting through the 1960s and 70s, the Standard & Poor’s 500 index has produced an average 20-year return of 7.25 percent if you look at all 20-year periods dating back to 1926.
Diversify for a smoother ride. Horror stories abound of investors too tied to a particular stock or other investment, says Jimmy Lee, founder and CEO of the Wealth Consulting Group in Las Vegas. “Diversifying across asset classes as well as within asset classes is a smart way to go. For example, equities come in different flavors when it comes to characteristics such as market capitalization, U.S. versus foreign or growth versus value. Though it doesn’t ensure a profit or protect against a loss in a declining market, being diversified provides the potential for a smoother ride,” he says.
Calibrate. Don’t vacillate. In a large number of instances, portfolios need tweaking with time rather than a complete overhaul, which nervous investors too often resort to during down market cycles. “Investing is a long-term activity, not a sporting event with minute-by-minute adjustments,” says Dave Rowan, founder and president of Rowan Financial LLC in Bethlehem, Pennsylvania. “Treat it as such, and make small, infrequent adjustments to your investing strategy rather than trying to time the market.”
A former longtime staff writer, editor and columnist at the Chicago Tribune, Lou Carlozo writes about investment for U.S. News & World Report, and personal finance for Money Under 30 and GOBankingRates. He is based in Chicago. Connect with him at linkedin.com/in/loucarlozo.