Investing: Are You Looking at the Big Picture?

By | March 7, 2011

One of the biggest issues that many people have when it comes to long-term investing is looking at the big picture, and how it fits into their long-term financial goals. It’s hard to focus on the long-term when, in the short-term, stock market volatility is scaring you. In order to stay focused on the big picture – which is what you want your finances to look like 20 or 30 years down the road – you need to tune out some of the yelling you hear in the financial media.

Develop a Longer Attention Span

As a society, we are so debt-ridden because we have short attention spans. Credit card debt is so high because we don’t have the attention span to save the money over the course of months for something we think we want now. The same lack of attention can also be difficult when it comes to maintaining your investment portfolio. We want to see riches immediately, and we get impatient if our portfolio grows at a moderate pace.

On top of that, the financial media, which like to focus on the next “crisis” has us drawing attention away from our long-term investing goals and looking at what is sure to be a stock market crash. Decisions made in panic just after the financial crisis led to people selling low, when if they had kept with a long-term investing plan, they could have been buying low and seeing substantial gains today.

Volatility Evens Out a Bit Over the Long Haul

Remember that, over the long haul, things that seem like huge market problems tend to even out a bit. A trend line observed over the course of 30 years looks a lot different than one observed during a particularly volatile five-year period. By keeping long-term trends in mind, it is possible for you to gauge how you are really doing with regard to the big picture and your investment portfolio goals. It is important to keep this in mind as you make investment decisions.

This doesn’t mean that you never get rid of anything. Long-term investing is about seeing how your decisions affect the big picture. If something changes fundamentally about an investment, it might be time to sell. Think about why the investment no longer fits into the big picture. Just because something dropped along with the rest of the market is not a valid decision to remove it if the fundamentals of the investment haven’t changed. If, however, something has changed about the investment that could affect its place in your financial plan, it might be time to shift things around.

Measured, carefully thought out asset allocation and portfolio re-balancing are part of a good long-term investing strategy. Just don’t let short term volatility lead you into abandoning your investment plan because of the panicked frenzy whipped up by the financial media. Long-term investing is an important part of your long-term financial stability. Don’t lose site of the big picture in the heat of the moment.

Miranda is a freelance writer and professional blogger, specializing in personal finance. She is associated with a number of web sites, including the AllBusiness Personal Finance Corner, her personal finance blog, and Credit Card Canada.

2 thoughts on “Investing: Are You Looking at the Big Picture?

  1. Pingback: Carnival of Personal Finance #301: Color Theory Edition

  2. Pat S.

    Check out Stocks for the Long Run by Jeremy Siegel to refocus yourself on the long term returns of the stock market. It will inspire you to disregard the hard times and probably turn you on to stodgy dividend growth stocks.

    Reply

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