How can long-term investing help us in our financial goals?

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EACH of us is experiencing life transitions, from the time we graduated college, started working or started building a family. At this season, globally we are also facing twists and turns in relation to the continuous oil price hike and alongside that is the rising cost of living. What we do today can have an impact on how we will face the future.

This is the reason why we should start managing our finances as early as now for Millennials and Gen Zs, for the older generation, we can look back and learn from our experiences in relation to investing. I would like to share some tips on how long-term investing can help us in achieving our goals and what are strategies we can apply.

Investing is a journey. Whether you want to invest to build your retirement or prepare for the educational funds of your children, when you put money to work in markets it’s best to set it and forget it. But successful long-term investing isn’t as simple as just throwing money at the stock market—here are seven tips to help you get a handle on long-term investing.

1. Set or know your time horizon. Each person has a unique investing goal. Understanding your time horizon or when you will need your invested funds will be one of your deciding factors regarding when to withdraw or still keep it invested. This will also help you choose your allocation if it is in a high-risk, high-return type of fund, low-risk, low-return type of fund or medium risk type. The longer the timeframe the more you can tolerate fluctuations which can allow you to invest it in high-risk, high-return funds and vice versa.

2. Get your finances in place. Before you can start investing for the long term, you need to identify first how much many can you invest. This includes checking your cash inflow and outflow. How much is your excess funds after deducting your monthly bills? This will be a step-by-step process such as establishing your emergency funds and protection from life risks. The foundations are essential for us not to withdraw our investments early on because of emergencies.

3. Consult a professional for strategies. Once your goals are in place and your financial foundations are set, choosing an investing strategy with the help of a professional will help you to see which suites you best. In every financial decision, it’s good to have guidelines or decision matrices, when to withdraw, which type of fund to allocate your money for diversification are just some of the things that you may consider. But realistically, you have to do what’s right for you, a portfolio of assets that you are comfortable with. When we experience market downtrends, there’s a lot of fear and anxiety but when your strategy are in place you will not worry because you know your horizon and allocations.

4. Diversifying your investments. In connection with your strategies, knowing how to diversify your funds will help you navigate the risks and maximize returns. Our goal is to place our investments in platforms that are not correlated. Meaning our investments should move in different directions. For example your allocation starts with a mix of equity (stock market allocation), bonds and money market type of fund. Within the stock component, you may consider the following options:

  • Large company stocks. These are shares of companies with 10 billion or more market capitalization
  • Mid company stocks. These are shares of companies with P2 to P10 billion market capitalization.
  • Growth stocks are shares of companies that are experiencing frothy gains in profits or revenues.
  • Value stocks are shares of companies with a price that appears low relative to the company’s financial performance, as measured by such fundamentals as the company’s assets, revenue, dividends, earnings and cash flows.

5. Evaluate regularly. Once your investments are in place, evaluating the returns and losses annually is essential. Since we are talking about long-term investments, we can check for swings and re-balancing our allocations as needed. It is important to re-allocate especially if your life season changes.

For example, someone who is still single has a greater risk appetite than someone who has newborn kids, or someone who has college students. Make sure that your portfolio remains diversified to maintain a risk level that you are comfortable as years progress.

Overall, there are things that are out of our control especially at this point in time. Managing the resources that we have and doing our part to contribute to nation-building will make a big difference for our family, communities and in our nation.

Karlo Biglang-Awa is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 97th RFP program this August 2022. To inquire, e-mail info@rfp.ph or text at 0917-6248110.