Why Long-Term Investing is Different Than Vegas: Investment Firm in Houston Explains
A quote from Charlie Munger: "The big money is not in the buying or selling, but in the waiting."
Investing is one of the most effective ways to build long-term, generational wealth for your family. However, there are certain beliefs that hold even the most financially savvy people back from putting any of their hard-earned money into the stock market. One of those beliefs is the idea that investing is the same as putting it all on the line in Vegas. It is amazing how many times in our 50 years of advising families on their wealth that we've heard this belief expressed in one form or another. However, this belief couldn’t be further from the truth.
In a game of blackjack or poker, the house has the upper hand. You bet all your money on chance and then you’re either right or wrong. You win or lose. But when it comes to long-term investing, the educated investor has the advantage. You gather all the information you need beforehand to make an informed decision that grows your wealth. While there’s risk associated with any kind of investment, it’s a completely different concept. As an investment firm in Houston, TX, it’s important to us that you understand why.
Whether you fear the market or are risk adverse in general, here’s what the team at Linscomb & Williams wants you to know about investing and the stock market, so you have the opportunity to build real, long-lasting wealth for yourself and your family.
Schedule a no-strings-attached conversation with the Linscomb & Williams team to see how we can help.
Investing comes with inherent risk. This risk is not the same as simply putting all your money on black 17 – especially if you take the long-term, educated approach.
With long-term investing, you establish your financial goals, build a diversified portfolio that aligns with those goals, then hold onto that portfolio for the long-term (usually at least 10 years).
Your diversified portfolio consists of hundreds of companies and securities that you (or your financial advisor) have vetted and believe will perform well over time. As these companies succeed and earn a profit, so do you. Because you’ve properly diversified, you’re insulated against any radical losses you’d otherwise experience if one of them failed.
Unlike gambling, long-term investing should never be based on short-term changes, heated emotions or gut feelings. It requires you to stay focused on your financial goals, practice patience, and ignore all the news and noise that says otherwise.
If history is any indicator, long-term investing works. (Read our recent blog post: Historical Market Downturns: What We Can Learn from Them Now.) The S&P 500 has seen an average 10 percent return over the past century. Of course, this return isn’t consistent year over year. More often than not, the yearly return is positive, but in certain years, it is down. Overall, however, the stock market tends to reward those who invest for the long haul. You can’t say the same about Vegas! In fact, the exact opposite is true in Vegas.
When you gamble, you essentially bet all your money on an event that has no certain outcome. You leave it all up to chance in hopes of winning big. In the world of investing, this is similar to day trading or swing trading, which is the exact opposite of long-term investing.
With day trading, you throw all your money into a few hot stocks you think will explode over the next few days. Then, you try to sell them all in a hurry once you think they’ve reached their peak. However, most of the best of the best on Wall Street admit they can’t accurately time the market.
The house is set up to win when you gamble, and those same odds stack up against you when you try to time the market. You take on unnecessary risk that can wreak havoc on your long-term financial security.
When it comes to long-term investing, you don’t risk all your money on a short-term venture that’s over and done within a matter of minutes. You build a portfolio that corresponds with your age, time horizon and goals. You (or your financial advisor) vet each security you bring into your portfolio by looking at the company’s business model and financial statements to see if it’s worth owning. Then, you plan for the long haul, let compound interest work its magic, and review your plan on a regular basis to see if you’re still on track.
Tuning Out the Noise
It’s understandable why people fear the market and compare it to a night in Vegas – headlines, movies, even gossip between friends, neighbors and coworkers tend to include some story about someone who has lost all their wealth in a “market crash” or soiled their life savings on a few bad bets. The financial press tends to sensationalize these stories.
The truth is, people who “lose it all” in the stock market aren’t usually investing long-term. They’re either trying to time the market or they’re making irrational decisions based on emotion, both of which are incredibly dangerous. Remember, any time the stock market takes a dip, you don’t actually lose money unless you sell your investments and lock in those losses.
That’s why tuning out the noise is so important.
As an investment firm in Houston, TX, our team helps clients tune out that noise. If they read a salacious headline or fear an investment horror story, we encourage them to talk with us! Investing can be uncomfortable, so it’s important to lean on your financial advisor to understand the reason for market volatility. In actuality, volatility in the financial markets can be one of the best friends of the prudent long-term investor.
A great example of this volatility opportunity can be found in reviewing the U.S. stock market within the past two years. In the six months between mid-February and mid-August of 2020, the S&P 500 stock average was unchanged. But at one point in late March of 2020, stock prices had dipped almost 35 percent from where they were in mid-February. That represented a golden opportunity to put cash to work in quality companies or to rebalance one's balanced portfolio that might have become over-weighted in bonds and under-weighted in stocks.
Why You Should Talk to a Fiduciary Financial Advisor
Money is emotional. There’s no doubt about it. And when you’re investing, it’s easy to get sucked into panic mode and want to start saving your money in an old coffee can in the backyard! But this can be a risky strategy as well. While your money will be safe from loss, it likely won’t keep up with inflation.
With the right financial advisor by your side, you have a financial advocate in your corner who can serve as your sounding board and accountability partner, helping you stay calm and focused when in volatile times and preventing you from making a mistake that can have a long-lasting effect on your future. As a fiduciary, the financial advisors at Linscomb & Williams have a legal duty to put clients’ best interests first, even ahead of their own. We don’t sell products, so there’s no incentive to push a particular stock or strategy. We don’t work on commission!
Even more importantly, a financial advisor can help you map out where you want to be in the next 10 or 15 years financially, then help you develop the right spending habits and long-term investment strategy to help get you there.
At Linscomb & Williams, our dedicated team of financial advisors is here to help you build a long-term investment strategy that puts you one step closer to reaching your goals. Schedule a no-strings-attached conversation to see how we can help.