4 Successful Long-Time Investors Share Their Top Investing Advice

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What’s the key to being a successful investor? To find out, Schwab surveyed more than 3,000 of its clients, ranging from seasoned clients to those who have just recently started investing. Schwab also asked those who have been in the investing game for the longest time to share what they believe has made them successful over the years.

Here’s a look at what four long-time investors had to say.

Keep a Long-Term View and Don’t React to Market Swings

One investor shared the following advice: “Long-term viewpoints are crucial to sticking to a plan when everything seems to be down and the selling seems relentless. If you stick to your plan, you will do extremely well over long periods of time.”

Not reacting to downswings in the market is key, said Mark Riepe, CFA, managing director and head of the Schwab Center for Financial Research.

“Most people overreact to recent events,” he said. “When you do that, you inevitably end up chasing performance. You’re chasing markets on the way up, you’re chasing them on the way down. You end up buying high and selling low.”

That’s why, historically, mutual funds perform better than investors who own shares of the assets within those funds.

“A lot of that is just because of the way the money moves in and moves out,” Riepe said. “They’re getting in late and they’re bailing out at the worst time, on average. That’s the problem.”

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Keeping a long-term viewpoint is equally important, he said.

“How do you have that long-term perspective? You start to get away from the investing for a second and start out with a financial plan,” Riepe said. “What are your goals? What are you trying to accomplish? When are you going to accomplish that by?

“As you keep focused on your goal, then you’re going to be less likely to react to every wiggle that occurs in the market and you’re going to be more consistent in terms of how you’re investing,” he continued. “And over time, on average, that tends to work better.”

Be Realistic and Diversify

Another long-term Schwab investor shared the following tip: “Be realistic. Be patient. Don’t get emotional. Diversify, diversify, diversify.”

Riepe said that diversification is an important part of any investment strategy.

“Diversification is kind of admitting that you don’t know everything — you’re admitting that things can go wrong, that maybe your analysis is faulty, maybe an event will happen that you hadn’t anticipated,” he said. “It’s sort of being humble about how complicated it is to make forecasts of interest rates, the economy, stock prices, and you don’t have all the information available and so you’re better off spreading your money out a little bit.”

It’s also essential to have realistic expectations.

“If the long-term return on the stock market is about 8% — that’s what it’s been for the last 100 or so years — if you’re building your financial plan assuming you’re going to get a 15% return, you’re sort of asking to be disappointed,” Riepe said. “So having a sense as to what’s possible in terms of investing is really important.

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“When we enter into situations where we have a sense of what’s going to happen and what’s possible that’s grounded in reality, we’re much less likely to be disappointed — and we’re much less likely to make an extreme decision in the face of that disappointment.”

Set Specific Goals for Your Investments

“Align investments with your personal goals in mind; retirement, college, new house, etc.,” another long-term Schwab investor said.

Knowing what your goals are can help you decide the level of risk to take when investing.

“You’ve got to [ask yourself], why are you investing? When are you going to need the money? And how much of the money that I have in my account am I going to need for this particular purpose?” Riepe said. “Then, decide how much risk you’re willing to take.”

The shorter term your goal is, the less risk you should take, he said. For example, if you’re saving for a down payment to purchase a home within the next five years, you should take less risk. But if you’re saving for your kid’s college education and they are only in kindergarten, you can afford to take a little more risk with your investments.

“And, of course, when you’re talking about a retirement that’s maybe decades away, you can afford to take on a lot more risk,” Riepe said.

Be Consistent

Finally, a fourth long-term Schwab investor shared the following: “Consistency is very big in investing. Even a small amount will grow if you add to it on a consistent basis.”

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If you’re not investing consistently, this can end up really costing you, Riepe said.

“You’ve got to be consistent because if you drop out, it’s hard to get back in,” he said. “If you’re like, ‘OK, I’m not saving for a year,’ now that turns into two years, that turns into three years. And that’s all lost time. So investing through thick and thin is the way to go.”

The easiest way to do that is to automate contributions to a 401(k) or another investment account. “Pay your future self first,” Riepe said.

In addition to investing consistently, it’s also important to continue to increase the amount you are investing.

“When they open a 401(k) account, a lot of people will just go with the default amount, which is actually pretty low,” Riepe said. “Every time you get a [promotion or a] bonus, that’s a good time to rethink about your savings and whether you need to boost that, rather than just spend it all. To save 10%, you likely have to work up to that over time. But you’re never going to work up to it if you’re not thinking about it periodically.”

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