How to Invest for the Long Run

Most people who have sizeable invested assets make the preservation of those assets a top priority. This requires a focus on the long term — you’re not going to find too many high-net-worth day traders. The very wealthy know that chasing short-term returns is never a good plan.

For those of us aspiring to be high net worth — and stay that way into retirement — it can be tempting to look for short-term gains. A few people get lucky over short periods, but do you really want to bet your financial future on a run of good luck?

For physicians in particular, an analogy would be counting on the sale of your practice for a retirement nest egg. You may think your practice is valuable now and will bring a considerable windfall when you’re ready to retire, but there are no guarantees. Competitive or economic conditions may not be favorable when it’s time to sell, and the practice may not bring enough for you to maintain your lifestyle into the future.

To grow and preserve your assets pragmatically, here are some recommendations:

Extend your time horizon and view into the future. And focus on what your portfolio really needs to do for you over the long haul.

This is necessary to truly determine what your portfolio needs to deliver. There is really no substitute for estimating what your “lifetime cash flow” is likely to be, considering all your sources of income (wages, pensions, Social Security, etc., as well as your investments) and all your expenses (the ongoing costs of maintaining your lifestyle, as well as one-time expenses). And don’t forget to factor in inflation.

There are a number of easy-to-use software tools to help you do this, such as Quicken and Microsoft Money, as well as online tools from financial institutions such as Fidelity Investments and Vanguard.

Once you do a lifetime cashflow analysis, which is important in its own right, you can try out different investment strategies, from conservative to aggressive, to see which strategy secures your financial future with the greatest degree of safety. The answer may not be obvious.

For example, the safest portfolio for you isn’t necessarily the most conservative one. The safest portfolio is one that provides the greatest chance of meeting your long-term financial needs with the least risk of failure.

One thing that this exercise forces you to do is to take the long view of your financial situation. If you want to get ahead, stop worrying about day-to-day movements in the market or individual securities and focus on your long-term goals.

Given the current market and economic uncertainty, it’s more important than ever to ensure that your portfolio is properly allocated and risk-managed. Ask your advisor for help to ensure that your retirement nest egg lives up to your expectations.

Robert J. DiQuollo, CFP, CPA, is chief executive officer and senior financial advisor at Brinton Eaton a wealth advisory firm in Madison, N.J., serving individuals and institutions throughout the U.S. He is a member of the MD Preferred Financial Advisor Network. He can be reached at diquollo@brintoneaton.com.

Stop thinking short-termDo a cashflow analysisTest different investment strategiesStop worrying about day-to-day market movements