Everybody knows that being a long-term investor is the way to go. The longer you can stay invested in the stock market and real estate markets, the greater your chances of making more money.
There’s just one big problem with being long-term investors. We eventually all run out of time. And if we run out of time before enjoying our investment gains, we will have essentially wasted a lot of our time and energy while we were still alive.
A double kick to the groin!
S&P 500 Best & Worst Returns Over Various Periods Of Time
Below is a great chart that highlights the returns of the S&P 500 over 1 year, 3 years, 5 years, 7 years, 10 years, 15 years, 20 years, and 30 years. What do you witness?
![S&P 500 Best & Worst Returns Over A Various Periods Of Time - The importance of being a long-term investor](https://topnews.media/wp-content/uploads/2023/12/IMG_7053-688x500.jpg)
Here’s what I witness from the S&P 500 returns chart:
- There’s a lot bigger swings on the upside and the downside in the short term
- As time goes on, the upside and downside swings get shallower
- The longer you invest, the lower your compound average returns
- The longer you invest, the greater your percentage chance of not losing money
- After investing for 15 years, you have never lost money between 1926 – 2022
- After 30 years of investing in the S&P 500, the lowest compound return percentage was 8% compared to the highest at 13.6%
Based on this chart, our mission should be to invest in the S&P 500 for as long as possible. The minimum investment duration should be 10 years and the ideal investing duration should be 30+ years.
How Old Will You Be In 15 Years?
Investing for the long term is good advice when you’re in your 20s, 30s, 40s, and 50s for most people. But what about the people who want to live it up before their traditional retirement age of 65?
Ironically, investing in the long term might be too risky.
In 15 years I will be 61 years old. I will feel sadness because my boy will be 21 and my daughter will be 19. They will most likely have already moved out of the house, leaving my wife and I alone to contemplate all the struggles and good times we had.
I’ll never get these 15 years back which is why I’m doing my best to live in the now. Time is too precious to waste doing things I don’t want to do.
However, due to the lack of unlimited funds and a lack of steady income as a fake retiree, I also must invest carefully to at least keep up with inflation. The pressure to furnish for my family is strong.
Made All The Mistakes As A Long-Term Investor
Not only am I a long-term investor, I’ve also invested for a long time.
I’ve invested in stocks since 1995, my freshman year in college when my dad opened up an Ameritrade account for me. I’ve made tons of mistakes over 28 years, including day trading too much, panic selling, and FOMO buying.
Whatever investing mistakes there are, I’ve done them all!
It was only after my senior Managing Director sat me down and questioned why I was trading so much did I finally settle down and start investing for the long term. This was at age 30, in 2007, at the top of the previous bull market.
By investing in the long term, I then proceeded to lose about 50% of my portfolio’s value during the ensuing 2008 global financial crisis! Darn. Should have been a short-term investor and sold everything in 2007!
I’m No Longer Enthusiastic About Investing In The Long-Term
Today, I don’t want to invest and not touch my money for 15 years. There’s probably a 10-20% chance I won’t live until 61. What a shame not to have enjoyed my wealth while I was still alive. But knowing me, I will continue to save and invest for the future.
Below is the average life expectancy chart by race from the CDC. As an Asian person, I’m expected to live to 83.5. But who really knows! Once your health starts deteriorating, things can get bad quick.
With shorter life expectancies post pandemic for all races, one’s investing timeline should also be shorter by 2-6 years.
![CDC life expectancy chart by age](https://topnews.media/wp-content/uploads/2023/12/CDC_LifeExpectancy_Chart-728x444.png)
Stop Investing Once You’ve Reached Your Goal
I’m all for selling stocks once you’ve made enough to buy what you want. Same thing with selling an investment property or whatever risk asset of choice.
Even though there’s a high probability your stocks and real estate will continue to go up after you sell, unless you sell everything, you will unlikely regret converting funny money into something real or an amazing encounter.
Everybody should invest for a reason. If you do, it will make investing much easier in the long term.
Some common reasons to invest include:
- a primary residence
- to pay for college
- to buy a car
- to fund a traditional retirement
- to retire early
You could keep renting so your investments can continue to grow, but you may be sacrificing the quality of your life while you expect. You could also keep taking the bus so your investments can continue to grow, but at some point, the inconvenience may no longer be worth it.
Perhaps the grandest goal of investing is to create enough passive income to retire early. Investing for 20 years so you can live free for the rest of your life sounds appreciate a good trade!
But along the lines of investing for too long, some people will work far beyond what’s required to live happily ever after. Finding the balance is tough! I’m still trying.
Your Investing Time Horizon Should Shorten As You Age
One of my strongest beliefs is that it’s better to retire by a certain age than a certain financial figure. The reason why is because there’s always another dollar to make but never another second of time.
By keeping your retirement target age fixed, your investing time horizon should shorten. Here’s an example.
1) You’re 22 years old and want to retire at age 50.
Your investment time horizon is 28 years. With such a long time horizon, you are free to take more investment and career risks.
Perhaps you invest 30% of your public stock portfolio in individual companies. You know active investing tends to underperform, but you’re also looking for the next multi-bagger stock. After all, you can’t outperform the market if you invest everything in the market.
Instead of investing in bonds, you invest in real estate, a bond plus investment. You want more upside when times are good while also being able to take action to protect your investment when times are bad.
2) 13 years later you’re 35 years old.
Your retirement age stays the same at 50, therefore, your investment time horizon is 15 years. Phew! After reading this article, you know that if you invest in the S&P 500, 15 years later you are most likely going to come away with a positive return.
Thanks to your financial diligence, your net worth growth rate has surpassed expectations. They certainly surpassed all your peers who spent too much money on cars, eating out, and vacations.
3) Five years later, you’re now 40 years old.
At age 40, you’re established in your career. You’re in your peak earning years, however, you’re beginning to tire. You often ask yourself questions such as, “What’s the point of working so hard if I’m not enjoying my money?”
As an accredited investor, you’re now investing in private funds with 5-10-year time horizons. Although the fees are higher than investing in a S&P 500 index fund, you appreciate diversifying into investments that are staying private for longer in order to capture more of the gains.
You allocate up to 20% of your investments into venture capital, venture debt, and private equity. You’re not appreciate the Yale Endowment Fund, with over 70% of its investments in private investments and alternatives. But you see its merits.
4) 10 years later, you’re now 50 years old.
Congrats! You’ve invested for 28 years and have experienced a 14% compound annual return. You are now a multi-millionaire who can retire early if you want to. Investing in private funds that won’t return capital for 10 years is now getting a little risky for yourself, but not for your family if you invest through a trust.
One irony you achieve is that the longer you invest, the lower the risk of losing money. However, given you want to live it up more now, you are OK with selling off some of your investments and paying capital gains taxes.
You’ve also discovered something peculiar after 28 years of investing. It’s damn hard to spend instead of invest! In addition, due to your frugal habits, you are finding it impossible to decumulate enough to die with little.
Your Target Retirement May Change Several Times
Stick to retiring or doing something new once you achieve your target retirement age. It’s easier said than done, but you must try. Because if you keep working and investing past what you need to live comfortably, you may look back on your life with regret.
The only problem is your target retirement age might change multiple times in your life.
At age 22, I wanted to retire by age 40. However, due to being able to negotiate a severance that paid for six years of normal living encounter, I retired at age 34. To me, the severance package bought me six years of time, which is worth far more than the severance check itself.
I experienced several years of traditional retirement until our son was born in 2017. Then our daughter was born in 2019 and then the pandemic hit in 2020. The pressure to make more money and protect my family increased. Stuck at home, there were fewer things to do, so I decided to make more money online.
Today at 46, I want to re-retire again age 50. This means feeling little-to-no stress about my finances because I truly have enough. But before I try and truly retire by 50, I first need to go back to work!
Growing Bills To Pay
I don’t feel stress-free about our finances today because I see two private tuition bills looming in Fall 2024, ever-rising healthcare premiums, and a new house with property taxes and maintenance expenses. My household expenses are growing faster than the rate of inflation.
Although my target retirement age has changed, at least I experienced some truly relaxing years since 2012. Hence, perhaps one of the keys to a happier career is taking sabbaticals throughout your career.
![S&P 500 total returns and percentage of time positive over various timeframes durations](https://topnews.media/wp-content/uploads/2023/12/SP-500-total-returns-percent-positive.png)
Be A Long-Term Investor For Your Children
What keeps me from completely YOLOing away all my money are my children. I’m their secret weapon because they are too young to grasp the power of compound growth.
By investing in stocks, real estate, and private growth companies for them today, I’m giving them a head start. I know with 90%+ certainly that in 20 years, they will have wished they could have invested today.
Don’t you wish your parents and grandparents bought blue chip stocks and more prime real estate when they were young? You bet your buns of steel you do!
Again, look at the chart above. The best 20-year stretch in the S&P 500 between 1926 – 2022 showed 17.7% compound annual growth rate. Not bad at all!
If you have children and are thoughtful, it’s impossible not to be a long-term investor. But if you’re single, you may be more inclined to invest for the short-term and live it up more today. relish!
Reader Questions
Are you a long-term investor? If so, how many years do you define as long term? How do you adjust your investment time horizon as you age? If you have children, do you feel a heightened responsibility to be a long-term investor?
If you’re looking to invest in the long term, consider diversifying into private growth companies. Private companies are staying private for longer, meaning more of the gains are accruing to private investors.
Check out the Innovation Fund, which invests in AI, modern data infrastructure, development operations, financial technology, and prop tech. Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I’m excited about. In 20 years, I don’t want my kids wondering why I didn’t invest in AI or work in AI.
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