Comprehensive Financial Planning Done Right Provides Long-Term Financial Rewards
by Gabriel Lewit
It can sometimes seem that there are as many investment strategies as there are indices to invest in, which can be overwhelming. While there will never be a shortage of financial experts and gurus offering supposedly infallible advice, there are tried and true methods that withstand the test of time, regardless of the latest financial fads.
Successful long-term investment management requires financial discipline and comprehensive planning. As a financial advisor in Buffalo Grove, IL, our team at SGL will help you develop a long-term financial plan and reap its benefits over the long run.
In this article, we will go over the following:
- Long-term investment strategies are critical but require financial discipline.
- Your planning and strategy must be based on offense and defense (accumulation and preservation).
- Portfolio rebalancing can help maintain whatever risk exposure you are comfortable with.
- Compound interest is a silent wealth builder that many don’t understand.
SGL Financial, one of the best financial advisors in Illinois, offers exemplary advisory services such as asset management, retirement plans, and even retirement stress tests for investors in the Buffalo Grove, IL area.
Long-Term Investments are Key but Require Discipline
Investing is a stellar option for building wealth and achieving financial goals. However, wise investors never approach their investments with the mindset of cutting corners and getting rich quickly. A tried and true method of creating real wealth is taking a long-term approach. The stock market can be volatile, and there will undeniably be market downturns over the long haul.
The best way to navigate this volatility is with poise and patience. Investors with a patient approach prioritize buying and holding investments for the long term. This is how they accumulate growth over the years without letting fickle market conditions influence their emotions and spoil their portfolios.
Focusing on the long-term goal for your assets is the simplest and most dependable method to attain considerable returns in your portfolio, although it requires discipline. Here are a few stalwart investing strategies to implement over the long term:
- Match your investments to realistic financial goals by knowing how much risk you are willing to take as an investor
- Diversify your investments across multiple asset classes to mitigate risk and increase your chances of potential returns
- Avoid trying to time the market unsuccessfully by moving money in and out of equities, as it is risky, and even the most veteran investors time the market wrong.
- Dollar-cost averaging is particularly adept in long-term investment strategies as it invests a specific dollar amount at regular intervals regardless of any market swings.
Understanding Accumulation and Preservation Stages are Paramount
Your investment horizon could span decades, and you will experience several different stages over its course. Generally speaking, there will be three major stages: the accumulation phase, the preservation phase, and the distribution phase.
You have to look at the accumulation phase offensively, where you try to accumulate as much wealth as possible within your preferred risk parameters. In the preservation phase, you are playing a type of defense; you have entered the retirement risk zone and want to ensure that all of the money you earned in the accumulation phase is still available for you to use in the distribution phase.
Understanding these phases is of paramount importance, and it’s important to remember:
- The sooner you begin the accumulation phase, the better, as the long-term financial disparity between beginning in your 20s versus your 30s is considerable.
- Delayed gratification is imperative in the accumulation phase, as foregoing immediate use of your money for a bigger payout later is the fundamental principle at work.
- Generally speaking, the accumulation phase is the longest portion of your investment horizon, spanning several decades and requiring sound strategy.
- You can mollify the fickle effects of luck and chance if you follow a disciplined investment strategy for your portfolio where you prioritize rebalancing in order to achieve long-term success.
- In the preservation phase, diversify assets instead of concentrating them, as spreading your assets out amongst many different classes mitigates the chances of taking severe losses.
- Reduce your overall risk by decreasing leverage while building some margin of safety via allocating funds to bonds or mutual funds.
Portfolio Rebalancing is Crucial in Building Long-Term Financial Rewards
Portfolio rebalancing is part of a passive investing strategy that tends to perform well over the long run. Portfolio rebalancing is simply regular maintenance for your investments, similar to changing your car’s oil.
When you rebalance your portfolio, you are just buying and selling stocks and bonds until your asset allocation matches your risk profile, which will almost certainly change over the course of your investment horizon. When rebalancing your portfolio, keep in mind the following:
- There is no preferred threshold when you are selecting a rebalancing strategy.
- As a general rule of thumb, you want to sell any over weighted assets.
- If you approach rebalancing with discipline, it can eliminate any panicked moves while increasing your overall long-term returns.
Portfolio rebalancing has much to do with your risk tolerance, which will undoubtedly change over time. Our team at SLG is comprised of investment advisors and financial planners specializing in portfolio management who can help you assess your risk and apply it to your portfolio appropriately. We can use your current or future risk profile and apply it towards the future to stress test your retirement plan to help with your long-term financial plan.
Compound Interest is a Silent Wealth Builder
Compound interest is not a flashy strategy and won’t make you rich fast, which is likely why it is so under-appreciated. Many investors undervalue the power of compound interest and its strength as a wealth-building tool over the long term. The “interest on interest” principle multiplies money at an accelerated rate, and the larger the amount of compounding periods, the greater the amount of compound interest there will be. To understand compound interest, you must remember the following:
- Compound interest is calculated on the initial principal, which includes all accumulated interest from prior periods.
- Interest can be compounded on any frequency schedule from daily to annually and is not set in stone.
- Investors and creditors benefit more from a more frequent compounding of interest, while borrowers benefit more if the opposite is true.
Work With SGL to Achieve Your Long-Term Financial Goals
A financial plan spanning decades can be a daunting task to formulate on your own. Our expert advisors can answer any questions you have regarding retirement savings, Social Security, and investment strategies. With the right financial plan, you can be set up to navigate any type of market you’ll encounter. Give us a call today!