by How Long Term Thinking Improves Your Investing Experience – Developing financial plans and building an investment strategy begins with defining the goal that you are going to achieve. Many novice investors may have questions already at this stage.
Because the formulation of the goal largely depends on temporal frameworks. The goal that a person sets to materialize for the next year and ten years ahead will diverge if they pursue a growth strategy.
Of course, if a person defines survival as their only goal, it will be the same at any time. But if the investor sees their life as rising to ever greater goals, the time factor will matter.
How Long Term Thinking Improves Your Investing Experience?
So, if you are developing an investment strategy, will a short-term goal be enough? Or do you need a long-term goal as well?
Two Main Types of Investors Regarding Investment Goals:
Investors can be classified on various grounds, such as risk tolerance, investment style, willingness to act independently or through intermediaries, etc. One of the classification grounds may be the importance of the investment project for the investor:
- Some people invest their money in certain financial instruments, for example, shares, energy, precious metals, etc. to make a profit. Their main goal is additional income, which they accumulate and direct to the implementation of other plans that are significant to them. For example, this could be building a house, opening your own business, traveling around the world, etc.
- Other people invest money for the sake of implementing particular projects. For example, if you are a proponent of green energy, you may prefer to invest in some kind of start-up aimed at installing solar panels in public places, scientific research dedicated to finding the optimal use of wind power, etc. For such investors, the profit from the project is less important than the fact of achieving a specific result.
Therefore, different people will invest their money in the same asset for different purposes. For example, one investor buys crypto to make good money on the high volatility of this asset.
The other does this with the aim of developing DeFi, which they consider a more acceptable system of financial exchange than the banking system.
Mistakes When Setting Investment Goals
Why is short-term thinking not enough when developing a financial plan? If you are the first type of investor, your profits could amass over time.
However, without a clear plan for further action, you are unlikely to be able to accumulate it to implement larger tasks because it will be spent on everyday needs and often unnecessary things.
In this situation, you will have to take out loans to implement more global tasks. Of course, this is not a problem in the US, since there are many financial institutions willing to provide them.
Moreover, there are such platforms as Payday Depot, where you can compare the conditions of different lenders, communicate with them, and choose the best one. But loans are good when you take them infrequently and for a short period.
If you take out large loans for a longer period, this delays the realization of your financial goal.
To prevent this from happening, you need to develop long-term thinking that will help you accumulate investment income and direct it to a more weighty goal that is really important to you.
5 Reasons Why You Need Long-Term Thinking When Investing
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Financial Discipline
A goal is a powerful tool that disciplines a person. And if its realization conveys an additional meaning to a person’s life, they will be ready to sacrifice unnecessary spending to achieve it faster.
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Unlocking Hidden Potential
Having set an important, even if difficult to achieve, goal, a person mobilizes for its implementation. Their intellect begins to search for solutions that were not previously noticed. For example, along with investing free capital in profitable assets, an individual may think about monetizing their hobbies. Or they will decide to sell the excess real estate, which was unclaimed and stayed empty but was not offered for sale because it had some non-material value for a person.
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Activating the Prognostic Abilities
When determining a long-term goal, the investor is forced to think about future trends. This applies not only to business, where it is essential to understand what products in your chosen industry will be in demand in 5-10 years but also to your personal life.
If you, for example, are planning to build a new house, it is important to choose a neighborhood that will delight you even in 20-30 years. So, if you prefer a secluded lifestyle and are building a house on the outskirts of a large city, in 10 years, a new residential area may grow around your habitation. And this will devalue all your previous construction efforts.
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Prioritization
When an individual is determined to accomplish a long-term goal, the rest of their preferences will be ordered. And any momentary desire will not be able to overshadow this goal if it is truly significant to them. So, if you are saving money to give your child a prestigious education, lower priority goals will not be able to receive your attention and, therefore, your finances.
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Fast Decision Making
The problem of choice is simplified when a person has a long-term goal. For example, you won’t have to weigh for a long time whether or not to agree to certain projects or offers, be they financial or not. You will clearly see whether they contribute to achieving the main goal or not. If not, you will easily make a negative verdict and will not regret it later on.
Markets can be very volatile, especially during times of crisis. Asset prices can rise and fall. And if an investor does not have long-term goals, they will feel like a boat without an anchor or oars on these waves of change.
All financial trends both favorable and unfavorable will simply move them somewhere on these waves, either bringing a loss or a profit. If you have set a long-term financial goal, it is like finding oars and the desirable direction.
In this case, market volatility will become just a background against which you will move toward your goal.
