8 Key Factors That Determine Your Long-Term Investing Results

Dec 20, 2022
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Focus on what you can control rather than worry about what you can’t. That’s good advice for all aspects of life, including money management. 

For investors, it’s a timely reminder as well, given the ever-present uncertainty about the stock market’s future direction. Some market watchers anticipate double-digit returns in 2023. But you don’t have to go far to find many who disagree (see this month’s cover article, for example!), pointing to an impending recession, which would likely extend and deepen 2022’s bear market.

There are any number of events that may affect the investment returns you can expect from your portfolio over the next few years. The amount of wealth you can accumulate through investing is determined by a great many factors, including the following eight.

  1. The rate of return you earn.
    This is what investors tend to concentrate on. Thus, the time they spend attempting to pick winning stocks, the best funds, or the most astute market forecaster. Unfortunately, unless you’re willing to settle for guaranteed CD-like returns, this is the only factor in the group that’s largely out of your control. No matter how hard you study or how much you know, you can’t predetermine exactly what your rate of return will be. So doesn’t it make sense to turn your attention to the factors where you do have a lot of control? As in:

  2. Whether you’re building on a strong foundation.
    You don’t have as much to fear from economic storms if you’re debt-free, have an emergency reserve, and use a cash flow plan that produces a monthly surplus. Your ability to put such a foundation in place is affected by how big a house you buy, how new a car you drive, how responsibly you handle credit, and a host of other decisions—most under your direct control.

  3. How much you save.
    Invest $200 a month for 20 years at 10.0% and it will grow to $152,000. You could improve that to $198,000 by either (1) increasing your rate of return to 12% annually, or (2) increasing your deposit by $60 per month. Which do you think would be easier?

  4. How much you lose to taxes.
    The above example assumes you’re investing in a tax-deferred retirement account. If you made your $200 monthly investments into a regular taxable savings account, you’d need to earn 12.6% per year to reach even the lower $152,000 target (assuming a 29% combined federal/state rate). So be sure to make full use of tax-advantaged accounts like IRAs and 401(k)s.

  5. How long you save.
    Compound growth examples show that amazing things happen when you leave money invested for long periods of time. This means you should start contributing to your investment accounts as early as possible and plan to leave the money working tax-deferred for as long as possible.

  6. Whether you let your emotions get the best of you.
    Fearing the next bear market, the temptation arises to invest very conservatively. By the same token, when it appears as though a new bull market is taking shape, it can be tempting to invest very aggressively. But how will you know when to play it safe and when to take your foot off the brakes? Among the many risks you face as an investor, the risk of getting in your own way by making subjective, emotional trades may be the biggest one. Far better to follow an objective, time-tested, rules-based strategy. Choosing to use a process-driven approach to investing will lead you to better long-term results and a better night’s rest.

  7. Whether you’re playing the short-term trading game or the long-term investing game. In the investing game, you win by plotting your strategy very carefully at the outset, and then letting that strategy play out over time. The short-term news, current market fads, and so-called expert opinions are largely irrelevant to long-term investors.

  8. Whose advice you listen to.
    Is your strategy in sync with biblically based financial principles, or more reflective of the conventional thinking offered by the secular investing world? It’s your choice.

The final seven factors are under your control. Focusing your energies on maximizing their effect on portfolio growth will contribute far more to your success than hit-and-miss efforts to raise raw performance results.

Written by

Austin Pryor

Austin Pryor

Austin Pryor has 40 years of experience advising investors and is the founder of the Sound Mind Investing newsletter and website. He's the author of The Sound Mind Investing Handbook which enjoys the endorsements of respected Christian teachers with more than 100,000 copies sold. Austin lives in Louisville, Kentucky, with his wife Susie. They have three grown sons and many grandchildren.

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