Managing the risk and performance of a socially responsible investing portfolio is a long-term process involving professional competence and patience, particularly when it comes to investing in equities. Perhaps you've heard that Warren Buffett commonly invests for the long term. That is, he has made note of his preference for investing in companies he wouldn't mind owning for years, even a decade, should the market shut down.
A closer look shows that long term investing in stocks is important. Equities often outperform bonds, inflation, and cash over the long term. Of course, past performance does not indicate future results. There's no doubt that long term investments are not easy to make, especially when hard stock market times hit. Yet, having a long term mind-frame is just what you need to be a successful investor.
Consider What Long Term Really Is
"Long term" is different for each investor. Your strategy of defining the length of investment must consider your financial goals. Realize the market will not go in one direction all of the time. If you take a look at previous periods, it's historically evident that the shorter your "long term" period is, the more loss you are likely to be subjected to. The longer you can hold your investments, the more ideal the scenario, based on historical data.
Why Is Long Term So Important
For socially responsible investing, patience is not something you can overlook. The Behavioral Patterns and Pitfalls of US Investors, a report issued by the 2010 Library of Congress, indicates that investors who trade excessively are often those who underperform in the market. Second-guessing yourself, making changes often, and adjusting portfolios frequently does not necessarily lead to good things. In fact, another study, completed by the University of Michigan, indicates that most market gains and losses happen on just an entirely unpredictable handful of days. Riding that unpredictable wave by staying invested in a diversified equity portfolio of successful, socially responsible companies with a solid track record will increase your chances for sustained positive returns.
How You Can Get Through Those Tough Times
Again, investing for the long term is not easy. Once you see things turning downward, you may instinctively want to stop the bleeding. Yet, keeping yourself on track for those long-term goals is ultimately going to benefit your long-term needs.
Put a game plan in place, one that you can count on to get you through those emotional pitfalls of investing. When you have predetermined guidelines that take into account negative timeframes, you are less likely to have knee-jerk reactions to changing markets. Having a consistent asset allocation is critical when it comes to self-discipline in tougher markets.