Were you considering long-term investment strategies? The following principles and things to know are important to consider when making a long-term investment.
Time in the market can be far more important than timing the market. Because the rule of 72 informs us on how long it takes for an account to double, it is obvious that the longer you’re in and the more doubling periods an account has, the larger the potential for success. We suggest working with a good financial advisor who will find you funds that have outperformed the S&P 500 over time. We often recommend four categories of mutual funds: aggressive growth, growth and income, international, and domestic growth. While fees do matter, the net result is more important.
Although managed mutual funds have higher costs, some have historically had a greater rate of return than an index fund. Therefore, it makes sense to give them a try.
One way to save on fees is to use an A-share mutual fund instead of paying an advisor, say 1.5 % or more per year. The amount of time in the market and the rate of return can significantly impact a portfolio. For example, $500 a month for 35 years at a 10% rate of return compounded annually would be worth almost $2 million. However, waiting just five years and investing 30 years would turn into a little over $1 million, and that same investment of 35 years, if it achieved 6%, would turn into a little over 700,000. Hence, it is essential to understand the impact the rate of return and time in the market have on your account.
It is often in our clients' best interest to invest in a Roth IRA so that they no longer owe any taxes on the accounts when they retire. Most would rather wind up with $2 million tax-free than get a partial deduction on a $500 investment as they go.
I know it sounds simplistic, but the most important thing is to invest and start as early as possible.