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How to be a successful long-term investor

Investing is one of the most searched terms on Google, but explanations still haven’t reached plain-English level, yet. For example, if you Google the word: invest, you’ll find a definition that reads something like this:

“Expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.”

When you boil it down, investing is simply about building your wealth; specifically, building it over the long-term. Sure, it might not be as exciting as figuring out ways to “beat” the stock market, but often times slow and steady wins the race.

Thinking long-term can feel daunting, annoying, or, frankly, boring. But it doesn’t have to be any of those things. If you put a lot of the work on autopilot, you won’t even have to think about it once you do the initial set up. Here are 5 strategies you need to adopt (and set up to be automatic) to become a successful long-term investor:


1. Create a financial plan with long-term goals

The first thing you can do to prepare yourself to become a successful long-term investor is creating a financial plan.

Your financial plan will tell you everything you need to be doing on a monthly basis to make sure that you’re maintaining your current lifestyle through to retirement. A good financial plan takes a look at more than just how much money you’re tucking away every month into your RRSP or TFSA. Further, good financial plan will show you how to optimize your borrowing, protect your future assets with the right type of insurance, and build your wealth.

In other words, your plan is a roadmap. It looks at your entire financial picture, setting you up to live the way you want to.

Once you’ve created your financial plan, you can more confidently pick the right investments, insurance, and borrowing tools for your portfolio.


Making it automatic

While most people think this is the “hard” part, it comes much easier with a financial plan. If you’re diligent, organized and have a good understanding of your current financial situation, it should really be a breeze. And the best part? It gets easier.

Something that we always recommend here at Planswell is reviewing your plan – and goals – every 6 months, or whenever something significant happens in your life. A lot can happen in this time which will have a direct impact on your finances.


2. Pay yourself first

One of the best pieces of advice for paying yourself first comes from legendary personal finance author, David Bach. His advice is quite simple: take a portion of what you earn each month and invest it immediately. Bach suggests aiming for 20% of your monthly net income.

If 20% is unrealistic for your current situation, any amount is good to start. Over time, do your best to increase that percentage so you reach your goals faster. But even if you never find yourself in a position to save 20% or more of your income, you can still build wealth.

In fact, a 1926 personal finance book called The Richest Man In Babylon recommended saving 10%. The book advises people should “continue working hard at their current occupations, but for every ten coins placed in their purse, to take out for use but nine.”


Making it automatic

But what’s the best way to do this?

At Planswell, we always recommend setting up a “PAC” plan, otherwise known as a pre-authorized contribution plan.

Before you jump into right into it pledging and agreeing to committing 20% of your monthly net pay, get a realistic understanding of your monthly budget. Once you’re confident with your numbers and figure out something that fits your needs, it’s time to initiate your PAC plan – you can do this while you’re opening up new accounts or afterwards if you already have open investment accounts.

Most of the battle is simply showing up.

Make sure you’re committed to investing a certain amount of money every single month no matter what. The best part is you can make your PAC automatic, so you don’t ever see the money leaving your account and you don’t have to do anything. Your future-self will thank you.


3. Stay the course

Staying the course is how you lock-in your gains. Too often, people sell at the first sign of trouble – but that’s often the worst possible time to sell. That’s because if you sell when your investments are down, your losses compound. For example, if you lock in a 20% loss by selling, you will need to earn 25% just to get your money back. Instead, it’s way better to sit tight and let the market rebound – history shows the markets typically rebound in time.

A great example comes from Prince Alwaleed Bin Talal, who lost billions on his Citigroup shares during the 2009 recession. His response? “We’re getting hurt, but I’m a long-term investor.” The Prince knew that, over time, stock markets typically always gone up. Sure enough, the U.S. market nearly tripled within the next five years.


Make it automatic

If you want to become a successful long-term investor, emotions are the enemy. Don’t get overly excited when your investments go up and definitely do not panic when they go down – because they will. Instead, trust that the market has reliably gone up for centuries, and just keep adding to your portfolio every month.

Removing your emotions, coupled with automatic payments via your PAC investment account, will help you push through the bad times so you can take advantage of the good.


4. Diversify your investments

Do you know how Warren Buffet became one of the world’s most successful long-term investors? He purchased shares from a variety of different companies – basic, bedrock businesses that produce things people use every day, such as drinks, ketchup, candy and even car insurance.

The global economy produces more than $70 trillion worth of goods and services every single year. And when you invest in a diversified portfolio of businesses, you own a piece of them. That means a portion of their profits end up in your pockets.

So if you want to become a successful long-term investor, ditch the savings accounts and GICs that pay virtually no return, and forget mutual funds that charge insanely high fees – you’ll end up paying well over hundreds of thousands in investment fees alone.


Make it automatic

Instead, invest in an efficient, low-cost portfolio of Exchange-Traded Funds (ETFs) that contain stocks and bonds from a broad mix of great companies, something you can do automatically with Planswell Portfolios.

In other words, diversify where you’re investing. Over the past century, this investment approach has produced by far the best balance of high returns, while almost never losing money over any five-year period of time.


5. Focus on what you can control

Regardless of what you might read or hear from “savvy” investors, it’s impossible to control which way the market will go or when.

But what you can do is control the investment fees you’re paying and the taxes that eat up more than half of most people’s money.

Consider this example of Lisa, a 30-year old teacher looking to grow her retirement fund. If Lisa picks mutual funds, she’ll end up with around $700,000 by the time she retires at the age of 65. Now, with the same contributions, deposit, and returns, she’ll retire with well over $1 million if she chooses low-cost ETFs. The difference? Investment fees.

Want to see how much you can save just like Lisa did? Try our ETFs vs Mutual Funds Calculator.

When it comes to taxes, there are options such as RRSPs, TFSAs, RESPs and other fun acronyms to help you reach your goals. Choose the right ones, in the right proportions, and you could easily end up saving hundreds of thousands of dollars over the long term.

Make it automatic

Focus on controlling what’s actually in your control – fees and taxes. You’ll soon realize that market fluctuations will become less meaningful.

You can do this automatically by focusing on low-cost ETFs over mutual funds, which are available in almost every retirement account or other investment vehicle.


Food for thought

When it comes down to it, investing for your future isn’t rocket science—the bigger challenge is that it isn’t as sexy as the media makes it out to be.

Like so many things in life, what separates the winners from the losers is the boring stuff.

People who have the willingness (or stubbornness) to just keep doing the right things with consistency and discipline. Commit to investing a certain amount of money every single month no matter what. Commit to focusing on what you can control, and let go of what you can’t. But most importantly, commit yourself to creating (and updating) your financial plan—without that you’ll be exactly where you were when you first started reading this post.


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