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Money News

How to Think Like a Long-Term Investor

August 14, 2019

4 min read

Hi Stashers!

I usually write to you when the market makes big moves, and over the past few days, the market has been gyrating up and down. Here’s something I really want you to take to heart: Investing is all about time in the market, not timing the market.

Yesterday, for example, the Nasdaq was up around 2%, and today as I write this, it’s down even more than that. Zoom out and take a long-term view. Don’t get caught up in the short-term noise. Remember, you’re a long-term investor!

Market Psychology

Today I want to address something called market psychology.

Market psychology is all about the way investors feel at any one point in time. But it also includes the tendency for investors to act with their emotions, rather than stick to their long-term financial plans.

There’s a lot going on with the economy and with markets today. The U.S. is beginning to feel the impact of a trade war with China. An important indicator in the bond market, called the yield curve, is flashing red lights. And there’s a lot of uncertainty in global markets too.

As a long-term investor, however, it’s important to tune out the noise of the day, and buy small amounts of stocks, bonds, and funds on a regular basis, through the market ups and downs. Turn on Auto-Stash to help you do that.

Volatility is normal

It’s understandable for someone to be nervous when the market moves sharply down.  It can be uncomfortable, especially if this is your first time investing during one of these periods. Hey, I was a beginner investor once, too.

I remember investing through my first bear market in the early 2000s right after the Dot-com bust. It wasn’t fun seeing my account balance decline; however, I always had a long-term perspective. In 2008, I lived through another big market correction. But again, I thought long-term and maintained my focus.

Why thinking long-term is key

It’s important to think about why a long-term investor shouldn’t get emotional over these types of market gyrations.

Over time, the stock market will go up and down. Look at this chart compiled by New York University’s Stern School of Business, which shows market performance since 1928.  You’ll see some really good years, and some nasty years as well. The coolest thing to see is the compounding value of stocks, throughout the good and bad years.

Disclosure1
The above example is a hypothetical illustration of mathematical principles, and is not a prediction or projection of performance of an investment or investment strategy.

Here’s what it all means. Over the last 90 years, annual returns for the S&P 500 have been positive three quarters of the time. Nearly half the time (11 out of 24 down years) any losses were recovered within two years.  It has never taken more than 7 years to fully recover.

A prudent investor who bought regularly throughout this period (and didn’t panic or make rash decisions) would have seen a full recovery from all the down markets.

Important disclosure and takeaway: This is what happened in the past. It is by no means a guarantee of what will happen in the future. The key thing to understand from history is how bad years and good years follow each other pretty consistently over time. It’s the nature of the market.

How to think like a long-term investor

The majority of Stashers are new to investing. It’s our job to keep educating you on this long-term journey, and we take this very seriously. There are 3 million of you now with Stash accounts, and many of you all joined at different times.

Here’s the big tip: It doesn’t matter when you started. We aren’t market timers so the goal is not to buy something all at once, but rather to buy small amounts at different prices over a long period of time.

As an investor, you own real shares of public companies, bonds and other asset classes. These assets—or shares—are tangible and real and their prices move up and down. Your invest account isn’t a bank account, but instead represents money that you are putting away for the long term. Think of it like owning a home. Its value will go up and down over time.

Turn on Auto-Stash

Turn on or update your Auto-Stash. It’s the easiest way to add small amounts of money on a regular basis.  This way, you’ll avoid the emotional aspect of investing and won’t get fooled into trying to time the market.

Auto-Stash is an incredibly powerful tool, and an essential part of the Stash Way.

Work hard, earn your money, and then make it work hard for you. By taking a long-term view and consistently investing small amounts, you can allow your money to work for you.

Remember the Stash Way

Investing can be confusing, especially when markets become volatile.

That’s why we’ve boiled down our investing philosophy into three basic principles that we hope can guide you as you make your first investing decisions. We call our approach the Stash Way. Here are its three pillars:

When in doubt, follow the Stash Way, which you can learn more about here.

Stash on

We look forward to many great years ahead, as we help you meet your financial goals.

Thanks—and keep on Stashing!

-Brandon

Ps. We love to hear from you and value your feedback. Please write to my co-founder and me at: feedback@stashinvest.com

Make saving and investing a habit.

Go automatic with Auto-Stash.

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Make saving and investing a habit.

Go automatic with Auto-Stash.

Start now

Make saving and investing a habit.

Go automatic with Auto-Stash.

Start now

By Brandon Krieg
Brandon Krieg is the CEO and co-founder of Stash.

Disclosure1: Past Performance is not indicative of future results. The rate of return on investments can vary widely over time, including the potential loss of principal. For example, the S&P 500® for the 10 years ending 1/1/2014, had an annual compounded rate of return of 8.06%, including reinvestment of dividends (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). The S&P 500® is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. The S&P 500 is a market value weighted index and one of the common benchmarks for the U.S. stock market.

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Disclaimers

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.