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How thinking long-term helps you invest smarter

Brian Kennaugh  |  21 Mar 2018Text size  Decrease  Increase  |  
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Most people have heard the statement "it’s not timing the market, it’s the time in the market". Our day-to-day lives often don't teach us how to slow our pace and think long term. We are surrounded by convenience overload.

I recently found out I don’t even need to pick up my phone to check the weather anymore: my ‘house’ very kindly responds to my questions. And the phone that I previously used can be replaced in minutes if it stops working or when a new version is released.

Long-term investing in most cases means a minimum of seven years--which can seem a long way off. Patience is key, but how do you stay motivated?

We seem to have a gambling mentality to our investing these days and as a society, we have become increasingly impatient if we haven’t made a quick fortune.

One of my friends says that he has been an overnight success in the last 40 years. Now, I’m not saying you need that sort of timeframe to increase your wealth, but it does affirm the point that time is important however, our thoughts about time have a significant influence over our success.

We regularly speak with our clients about the need to not rush the implementation of our advice as they have already put in the work in recognising they require help investing, working with us on lifestyle and cash-flow goals and taking the time to consider their long term objectives.

The fact is, whether we invest the money today or tomorrow doesn’t matter. We have a clear investment strategy that matches our clients agreed goals and objectives. We have chosen investments suitable to the investment time frame(s) and the ‘next steps’ are clear.

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The most common next step is--wait for it--DO NOTHING! Just let it be. I understand that some people want to check their investment balance daily, others think it is annoying to receive an annual statement.

Warren Buffett, arguably the most successful investor in the world, has spoken about the investment philosophy of imagining that the share market was to only open every seven years for trading, and the benefits that this thinking would have for so many investors as there would be no choice but to "set and forget".

Barbecue and pub talk

We have all heard the investment stories and ideas, good and bad, discussed around a dining table or over the bar. It’s simple, but the key here is to remember that what works for others may not work for you.

I recently needed eye surgery to remove cataracts, and I chose the Lasik surgery that replaces the eye lens. I selected the best laser eye surgeon in the country, as I didn’t want to risk my eyes to an unqualified tradie who had started doing a bit of eye surgery on the side. Yes, the surgeon I chose was more expensive, but I now have 20/20 vision.

This principle seems ever so sensible when it comes to surgery, and yet there are plenty of people who listen to a friend at a barbecue or the pub, who tells them that they have just invested in this "fantastic scheme" or a company that is paying huge returns. But there is likely a very good reason why your financial planner hasn’t mentioned this opportunity to you. My recommendation is to talk to a professional about your investments and wealth creation, and keep the barbecue or pub talk to cars, sport and jokes.

Not always a binary choice

With all the legislative changes to tax and superannuation laws, I’ve heard people say that superannuation is not for them.

Of course, superannuation is not the only retirement planning vehicle, it is a very good one though. You have a range of different investment options both inside and outside of superannuation but to keep things simple, you can invest in property, shares, and cash.

The foundation of any good plan is knowing why you are doing something and therefore, having purpose when implementing your plan. If you are clear on why you are investing, you can then look to develop an investment plan structured around your ‘why’.

Diversification across property, shares and cash is common within investment strategies and a combination of these investment options will likely be present when creating your plan to reach your goal or your ‘why’.

Imagine if your superannuation formed a part of your investment strategy, wealth creation and retirement planning so that you could look upon it as a "spare tyre" or a reserve. You could check it regularly, pump it up regularly, and have it there ready and waiting for use as and when required however, have enough elsewhere to meet your goals.

Living the dream

I wish someone had pulled me aside when I was younger and taught me the basics of delayed gratification for financial fitness, physical fitness and even mental fitness. “The difference between successful people and really successful people is that really successful people say no to almost everything.”

The principle of delayed gratification applies to all sorts of purchases that are not income producing. My suggestion to you is that you save for any luxury item and buy it with cash to avoid paying credit card interest with after tax dollars. The results will likely include:

  • You will start to make yourself accountable and be better at saying NO.
  • You will save thousands of dollars over time and be far more frugal with your purchases.
  • You will make wise choices and will enjoy your purchases a whole lot more.

Keeping yourself financially fit by delaying gratification will change your views, your goals and your dreams. You should try it.

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Brian Kennaugh is the CEO of Hunter Financial Planning, a financial planning company based in Belmont NSW. Brian would love to hear war stories of success or otherwise with budgets. Please provide any feedback or questions for Brian at YMW@morningstar.com. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is the CEO of Hunter Financial Planning, a financial planning company based in Belmont NSW.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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