The First Law — Invest for 20 Years

Kurt Brouwer July 27th, 2007

Here is another excerpt from Mutual Fund Mastery (Time Business 1997). I thought this would be timely in light of recent stock market volatility.

The Laws Of Investment Success

There are laws of investing that have worked for many, many years. They are simple and straightforward. We call them the Laws of Investment Success. Investment professionals have known and practiced these techniques for many years without necessarily spelling them out.

No one taught us these laws, nor did we invent them. We think of them as signposts from past investors. We utilize them every day to make money for our clients. When we have lost sight of them, it has usually been to our–and our clients’–regret. We are hoping that you can learn and profit from the mistakes we made and the experiences we have had in the 12 years since we started managing money with no-load mutual funds.

The First Law Of Investing: Invest for a minimum of 20 years.

We know what you are thinking, ‘I don’t have 20 years to wait.’ The fact is, though, you’re probably wrong. Not only do you have an investment horizon of 20 years, in fact, if you are like most people, your horizon extends well over 50 years. Once you accept the first law, two things will happen:

• Your investment decisions will improve.

• You will sleep more soundly.

Invest for 20 years? Sounds a bit extreme, doesn’t it?…Let’s say you are 50 years old today. Happy birthday! Let’s say your husband or wife is also 50. Assuming you are in good health, one of you is likely to live to age 85 (35 years from now). Then let’s talk about children. Each generation tacks on about 25 more years to the planning. So, your investment horizon could easily be 60 years (35 years for you and/or your spouse plus 25 years for your children). And that does not include grandchildren.

Don’t have a wife or husband or children? What about brothers, sisters, nieces, or nephews? What about charities you believe in? What about world peace? In other words, almost everyone has a very long investment time horizon. For most, it is well over 50 years.

But just to mollify the skeptic in you, we will shorten it, not to 45 or 35 or even 30 years. We’ll shorten it to 20 years and help you develop a plan that maximizes your investment return for that period of time…’

I hope that advice–invest for at least 20 years–resonated with you. If you are very concerned about recent stock market fluctuations, can I persuade you to change your perspective a bit and extend it to 20 or even 50 years?

If you can do that, your investment results are likely to become both better and less stressful. And, assuming you have a solid portfolio of mutual funds with reasonable diversification, then you need not worry about short-term market fluctuations.

And, when you stop worrying, you can focus on the things that really matter–to you.

 

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