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Why the Best Financial Goals Have Long-Term Perspective

Why the Best Financial Goals Have Long-Term Perspective

February 20, 2024

We are living in an era of information overload, and it can be easy to have knee-jerk reactions to headlines and social media posts that are created to generate that very response. Particularly during an election year, when markets can be volatile and tensions are high, we’re faced with an onslaught of messages that might make investors fearful of the future.

However, market history tells us the best strategy is to stay the course. Keeping a long-term perspective is key for staying on the right track toward your financial goals. Here are a few reasons why: 

The power of compounding interest is real. By sticking with your long-term goals, your investments have more time to grow through compounded interest. Over time, your earnings generate their own earnings, creating a snowball effect. 

You can guard against inflation. Since the 1960s, S&P 500 dividends have consistently outpaced the rate of inflation. That means that by investing in high-quality stocks, you can collect dividends that are likely to protect your wealth in the long run.

You can avoid timing mistakes. I’ll let you in on a little secret: it’s nearly impossible for the market to be consistently timed. Election years bring a special kind of volatility to financial markets, as well as news coverage that is often sensationalized, politically biased and driven by emotion. Reacting to morning headlines and short-term fluctuations can result in buying too high and selling too low, and it’s best not to fall into that trap. While the market may experience short-term ups and downs, historical trends have shown that over longer periods, it tends to trend upward. By staying the course, you’re more likely to recover from downturns.  

There are tax benefits to long-term planning. Long-term investment vehicles like 401(k)s offer tax advantages that can help your money grow faster compared to taxable accounts. Contributions to these types of retirement accounts are made with pre-tax dollars – meaning the money goes into your retirement account before it gets taxed. Every dollar you save will reduce your current taxable income. By sticking with a 401(k) until you’re ready to retire, you’ll enjoy compound growth in addition to reaping tax advantages along the way.

In times of uncertainty and extreme stress, the best strategy is to lean on your financial advisor to remain steady and focus on the long-term view. At Willis & Machnik, we’re always happy to discuss your portfolio.

If you’d like to learn more about how we can develop a long-term financial plan and investment strategy for you, please don’t hesitate to reach out.