The allure of short-term profits from speculative investments can be tempting to both market newbies and experienced investors alike.
This article will talk through four hacks I use for making the best long term investments so you can avoid the increased risks and costs of short term speculation while setting yourself up for long term wealth creation.
Here’s why the concept of long term investing is so beautiful
The stock market can be rife with short term uncertainty, leading to volatility. That’s why investing for the long term is such a beautiful and reliable concept.
A long term approach can protect you against the inherent volatility of financial markets, allowing you to focus on fundamentals like the quality of business if that’s your interest.
The same applies if you want to focus on passively investing in index(s). The only difference is that you don’t have to worry about stock research!
With that said, Let’s unpack my top 4 hacks I use to make the best long term investments. If you’re short on time, you can use the links below to navigate to any hacks that pique your interest the most.
- #1 – Learn to budget
- #2 – Patience, patience, and more patience.
- #3 – Learn to love learning
- #4 – Remain unemotional
- My Final Thoughts
1. The Best Long Term Investments Begin With Excellent Budgeting
First things first, you’ll need to sharpen up your budget. I know what you’re thinking, ‘Jesse, what on earth does budgeting have to do with long term investing, they’re two completely different topics?!’
While that may be true, the idea of getting a grasp of where your money is going through a budget, and learning how to make the best long term investments actually go hand in hand. Let me explain.
Learning how to budget was my first step towards making the best long term investments
I didn’t know it at the time, but learning how to budget was my first step towards becoming a sensible long term investor. Granted, having a budget isn’t an asset class, so it certainly won’t do a great job at generating returns all by itself.
What a budget will do is give you the disciplinary and organisational skills you’ll need to make the best long term investments.
Once you have a grasp on where your money is actually going each month, you can plan ahead and assign allocations, or slices of money, into certain areas that align with your lifestyle and money goals.
For example, I aim to contribute about 20% of my monthly salary towards investing, give or take a few per cent depending on the month.
How did I come up with that allocation?
Based on my expenses, lifestyle choices and other money goals, a 20% allocation towards investing in the stock market makes sense for me.
What’s important is that you take the time over a glass of wine, or whatever your flavour and nut out how much you want to allocate depending on your money goals and expenses. All you need to do from there is stick to it!
If you’re interested in learning more about how to budget to facilitate your investing, check out this detailed article I wrote on the topic.
2. The Best Long Term Investments Require Patience, Patience, and more Patience.
Great Long term investors manage to create serious wealth thanks to their patience. Just ask Warren Buffett, who amassed 98% of his $US 80 Billion net worth after his 50th Birthday.
In a conversation with Jeff Bezos and Warren Buffett, Jeff Bezos asked “your investment thesis is so simple…you’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?”
Mr Buffett replied, ”Because nobody wants to get rich slow.”
No one wants to get rich slow. Don’t be like everyone.
This excerpt is a great example of how impatient we humans can be. Impatience can also be extremely damaging to your wealth creation ambitions.
Instead of maximising our chances to create lasting wealth by investing for the long term, we’re often persuaded to focus on high-risk short term bets that have a minuscule chance of actually paying off.
Paul Samuelson once said “investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 dollars and go to Las Vegas.”
For the best long term investments to pay off, patience is non-negotionable
If you want to make the best long term investments, you need to acknowledge that patience is non-negotiable. Unfortunately, this is all too often forgotten in the hunt for quick gains.
I’m a firm believer that patience is the most important trait a long-term investor needs to work towards. Without it, you’re likely to lose hope in your plans and get pulled into a riskier short-term play.
Being patient also forces you to be consistent, and disciplined in your approach to investing. A patient long term investor will consistently do their best to stick to a budget and invest the same amount each year, year in year out without any care for short term volatility.
Why? Because they know good things come to those who wait (excuse the cliche, couldn’t help myself).
3. To Make The Best Long Term Investments, You Need a Growth Mindset
It’s no surprise that the world’s best investors actively seek to acquire knowledge from different resources voraciously. The way they see it, the more you know, the more your investing possibilities widen.
Warren Buffett is a classic example. It’s said that Mr. Buffett reads up to 5-6 hours per day! And that’s for good reason. All that reading ain’t for nothing! In the same way that Buffett wants his wealth to compound over time, he relies on his knowledge to compound over time so he can continue compounding his wealth.
Be hungry for knowledge.
Much like a good budget and good investing go well together, a lifelong quest for the continual acquisition of knowledge also goes hand in hand with a fruitful investing experience.
That’s not to say that you need to read every available book, article and report by yesterday. It’s more about trying to stay actively aware and curious about what’s going on around you. You never know what opportunities might present themselves once you scratch the surface a little.
Great long term investors are not only curious, but they’re aware of what they own and why they own it.
If you’re invested in a company, it pays to keep up to date with how they’re tracking in comparison to the goals they’ve set for themselves. It’s also worth keeping a watchful eye on how the industry is evolving.
The passive index investor on the other hand would benefit from keeping up to date with any new ETFs or other products that would benefit them from a cost or portfolio diversification perspective.
If you fail to prepare, you’re preparing to fail, so make sure you do the right homework before and after you’ve committed to any investment decision. The last thing you want is for a vital piece of information to drop off your radar.
4. Remain Completely Unemotional To Make The Best Long Term Investments
Unlike peanut butter and jam, mixing emotions with investing is very far from a match made in heaven.
A great example can be drawn from the coronavirus induced flash crash we saw across stock markets globally in Feb/Mar 2020. The uncertainty of what was to come triggered immense fear amongst investors, driving the S&P500 into the fastest bear market (a 20% fall from highs) in recorded history.
Fast forward to now, and most established stock markets have re-cooped their losses and recovered to pre coronavirus levels, with some even eclipsing them!
The best long term investments require you to Keep the faith in your strategy
Although watching your portfolio shrink during the heat of an intense sell-off can be gut-wrenching (trust me, I know), the long term investor must have faith in their strategy and even take the opportunity to invest at discounted levels.
A lot of the time, the best long term investments are made after the market has spat the dummy!
Don’t believe me? Check out this Vanguard Index Chart of the ASX 200 showing how the market recovered following times of panic.
What will the market do? “It will fluctuate, young man. It will fluctuate.” – J.P. Morgan
John Pierpont Morgan Sr, commonly known as J.P. Morgan co-founded the banking behemoth that became J.P. Morgan & Co in 1871, now known as J.P Morgan Chase.
As the story goes, J.P. Morgan was once asked by a young investor for a forecast about how the market would go. Morgan replied: “It will fluctuate, young man. It will fluctuate.”
That quote might sound simple enough, but understanding that market fluctuations and volatility are part of the very fabric of investing in the stock market will go a long way to helping you make the best long term investments.
Moral of the story? If you think long term and remain unemotional during periods of volatility, history says you’ll be rewarded handsomely.
You may have heard me say in other posts that you should look at your investing as a practice. Just like a meditation practice, your investing practice should be something that you continually refine.
If you spend the time to practice developing the four traits I discussed in this post, I have no doubt the market will serve you well over the years.
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About The Writer
Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.
P.S. I’d love to meet you on Twitter: here
Disclaimer: This website ( “The Money Pal”) is published and provided for informational and entertainment purposes only. The information in the Blog constitutes the Content Creator’s own opinions. The information should not be regarded as financial advice.