short term vs long term

Playing the Long Game

© Can Stock Photo / JamieWilson

The more we think about it, the more striking it is. We are talking about the connections between major decisions and strategies in other parts of life, and effective investing.

Lengthening your time horizon enables you to look past normal market ups and downs, and perhaps enjoy long term gains. On the other hand, a short-term focus leaves people with a choice of potentially safer but stagnant accounts, or day-trading. Our experience leads us to believe that playing the long game pays. No guarantees, of course.

Likewise, thinking about where you want to be seven or fourteen or twenty-one years from now gives you a framework that shapes the choices you make day to day. You may be more likely to make progress toward your major goals in life. Not playing the long game may hurt your chances.

Many have had the experience of enjoying some product or service that seemed to be priced at unbelievable bargain levels. When we were young, a wonderful barbecue ribs place opened up nearby. Great food, all you could eat, an unbelievable price. There was nothing else like it. Customers flocked to it—we went back again and again.

For a few months, that is. Until it closed without notice or warning. The proprietor had not been thinking about the long game. He knew it was important to deliver a great experience to large numbers of customers. But he wasn’t paying attention to the need to cover his overhead and make a decent return. A dining room full of happy customers, the short term indicator, was not enough.

As customers, we would have been better off to pay sustainable prices to keep the restauranteur in business. His place might have become one of those beloved institutions that last generations. Instead, we got bargains on good food for a few months—then it was over.

In our business, we often counsel people about investments or insurance they originally purchased from an agent or advisor prior to becoming our client. Often some level of confusion or frustration has crept into their understanding of what they have. We are always happy help clear things up.

But this is an object lesson to us about the importance of being there for you. We are always thinking about the long game for our enterprise, too. Clients, if you would like to talk about this or anything else, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

A New Way of Looking at Your Wealth

paradigm

A paradigm is a typical pattern or example of something, a model. It is a set of concepts or mindsets. We frequently find ourselves at odds with the old paradigms about investing and finance, as you know.

One of the most irksome things (to us) about investing is the use of the terms ‘aggressive’ and ‘conservative’ in describing an investor’s investment objective. The industry-standard scale goes from conservative to aggressive in five steps, with prescribed mixes of stocks and bonds for portfolios at each step. At the conservative end, the portfolio would be nearly all bonds; at the aggressive end, nearly all stock.

But is it really conservative to expose wealth to the long term risk of purchasing power loss and missed opportunities that accompanies investing in fixed dollar portfolios of bonds and cash? We don’t think so.

An all-fixed income portfolio is typically suitable for short time horizons, where it is important to know that portfolio value will remain relatively stable. So in place of ‘conservative,’ we would use ‘short term’ to describe that end of the spectrum.

By the same token, is it really aggressive to invest for growth of capital over extended periods? As difficult as it is to make one’s money last a lifetime, growth may be handy for long term investors—for many, it can be crucial to financial success.

So instead of ‘aggressive’ for the other end of the scale, we would say ‘long term’ makes far more sense. Thus, instead of the ‘conservative to aggressive’ axis, we believe the continuum should run from ‘short term’ to ‘long term.’

It is a new paradigm, so to speak, for describing investment objectives. It replaces abstract and unclear terms with simple, easily-understood phrases. And it avoids the unfortunate connotations of conservative as prudent and aggressive as stupid. (Doesn’t ‘aggressive driving’ really mean ‘stupid’ driving?) All in all, we think this is a more useful way for you to think about your wealth.

A related issue confuses the conventional wisdom. The old paradigm mistakes volatility for risk. That may be at the heart of the misguided use of the word ‘aggressive’ since long term portfolios necessarily do fluctuate. (We explained why we believe that aspect of conventional wisdom is counterproductive in this short essay.

The bottom line: we always try to think about the best way for you to meet your goals. We look at the world and strive to see it as it is, not in accordance with some stale textbook written in a different age for different conditions. We cannot know that our view is correct, and we have no guarantees. But we do work at gaining a better understanding of how to grow your wealth.

Clients, if you would like to talk about this or any other aspect of your situation, please email us or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

No strategy assures success or protects against loss.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.