What Constitutes "Long term" Investing?

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Nowizard
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What Constitutes "Long term" Investing?

Post by Nowizard »

One of the most common guidelines for investing is to stay invested for the long haul, an adage that is often discussed when the market is turning downward and questions about reducing exposure to equities or bonds increases. Does the definition of "long haul" vary depending on where one is in the investing cycle. For example, it is clear that a 35 year-old has a long investing history ahead. However, a friend in his 70's who depends on withdrawals from his portfolio to meet expenses recently asked what he should do if there is a market correction. He did pull out entirely during early Covid19 days. More concretely, is "long haul" three years, five, ten, forever, and how should it be defined as one's life expectancy becomes much shorter? What possible differences does this make for older investors?

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aristotelian
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Re: What Constitutes "Long term" Investing?

Post by aristotelian »

There have been a few instances of "lost decades" when it comes to stocks. The instances of bonds or cash outperforming stocks over longer periods than that are pretty few and far between. From that standpoint, even a 70 year old arguably has a sufficient timeframe to justify an aggressive allocation. That said, someone with a low risk tolerance should probably be invested fairly conservatively regardless of their timeframe, especially if they already have enough accumulated that they do not need to take risk.
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David Jay
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Re: What Constitutes "Long term" Investing?

Post by David Jay »

It is common language to say that funds for use within the next 5-7 years should not be in stocks. So "long term" is something longer, perhaps 10+ years.
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RickBoglehead
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Re: What Constitutes "Long term" Investing?

Post by RickBoglehead »

OP's friend is the opposite of long term investing, having liquidated fully a year ago. What makes one think they would change?
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NiceUnparticularMan
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Re: What Constitutes "Long term" Investing?

Post by NiceUnparticularMan »

So I would put as much emphasis on the "investment" part of that as the "long term" part of that.

I like to distinguish what I would call "saving" from what I would call "investing". I would define "saving" as taking money you don't need now and using it to fund spending you anticipate in the future. I would define "investing" as taking money you don't need know and using it to fund risky ventures that might reasonably be expected to increase your wealth (expected in the technical, probability-weighted sense).

Saving can be short or long term. So, you could be saving for a planned house down payment in a month. Or, you could be saving for planned house mortgage payments in 30 years. And so on.

Investment can also be short or long term. You may be hoping this risky venture will pay off in a month, or over 30 years. And so on.

OK, so I tend to think of "long term" as 10 years or more, but that is really just a line in the sand. The more practical question to me is usually whether I am saving, as I have defined it, or investing.

And I don't really do short-term investing, meaning I don't "invest" in things where the venture is expected to end within a few years. Indeed, I'd say pretty much all my investments are more just "indefinite," meaning I have no particular expectation for when the venture in question is going to end.
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SimpleGift
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Re: What Constitutes "Long term" Investing?

Post by SimpleGift »

Rather than engage in an abstract discussion of "What is long term vs. short term," a more practical approach is to ask "When does the investor need the money?" Only then can one reasonably assess the volatility and return characteristic of various investments against one's specific time horizon. For example:
  • When is the Money Needed?
    1 Year.........Money Market Fund
    5 Years.......5-year Bonds
    10 Years.....50% 10-year Bonds, 50% Diversified Stocks
    30 Years.....20% 30-year Bonds, 80% Diversified Stocks
Otherwise, an abstract discussion of, say, whether 10 years is long term goes nowhere. How far is a long way? How short is a short string? You see the difficulty with delving into the abstract here.
Last edited by SimpleGift on Thu Jun 17, 2021 9:56 am, edited 1 time in total.
SafeBonds
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Re: What Constitutes "Long term" Investing?

Post by SafeBonds »

Swedroe points out there are three periods of at least 13 years where the S&P 500 underperformed totally riskless T-bills: '29 to '43, '66 to '82, and 2000 to '12.

From the many SWR (Safe Withdrawal Rate) threads and discussions we've had, it becomes evident that 30 years is about the same as "in perpetuity". That is, finding a safe withdrawal rate to fund a 30 year retirement is about the same as 50 year, and in perpetuity.

Check the duration sensitivity of 30 year bonds vs perpetuals too.

Practically, taking all of the above into account, I'd draw the line at 30 years.
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arcticpineapplecorp.
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Re: What Constitutes "Long term" Investing?

Post by arcticpineapplecorp. »

few thoughts:
1. your friend thought he was willing to take risk that he only realized when the risk showed up (in 2020) he wasn't really willing to take. It's been said in bull markets people think they're more risk averse than they really are (and only realize in bear markets).

2. your friend perhaps, while a conservative investor, sounds like he could benefit from more professional management of his money. Because what he did was sold (you say early in the downturn, but who really knows unless you've seen the statements) when stocks were down and then he's either still on the sidelines (in which case he missed the 20% return the market produced last year even including the 33% loss between mar-apr) or he bought back in at some point after the market recovered (in which case he's just selling low and buying high...a sure fire way to lose money over time).

3. what he needs is an IPS (https://www.bogleheads.org/wiki/Investm ... _statement). Then he needs to follow the IPS. It's been said investing is simple, but not easy. He's struggling with buy and hold which is the hard part for people who want to react to the market's changes.

4. He needs an allocation that takes into consideration the amount of risk has the need, ability and willingness to take:

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/

He needs to learn that market timing doesn't work:

Image

Swedroe explains why in "Better to Face the Correction":
https://www.etf.com/sections/index-inve ... nopaging=1

More people lose money in anticipation of corrections than in the corrections themselves.

5. He needs to undersand how much he can lose based on his asset allocation and large declines and then pick an allocation that puts a ceiling on his losses (50% stock decline assumed in chart below):

Image

6. If he's a balanced investor with 50% in stocks and 50% in bonds and assume a 4% SWR which assumes withdrawals over 30 years, then he's got 15 years in stocks and 15 years in bonds. If stocks go down for a prolonged period he draws from bonds while stocks recover. If it takes 15 years or less for stocks to recover, then he's got another 15 years to draw from. A conservative investor (30/70) would likely do better because losses are smaller and recover more quickly. The stock market that hit bottom in March 2009 would have recovered fully by March 2012 but a 50/50 portfolio would have recovered in 2010.
Last edited by arcticpineapplecorp. on Thu Jun 17, 2021 11:02 am, edited 1 time in total.
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firebirdparts
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Re: What Constitutes "Long term" Investing?

Post by firebirdparts »

I say 30 years. If figure, maybe you work 30 years, and if you're really really good investing, then maybe you withdraw 30 years, and I don't like to waste too much time on questions like this, so I'm good with that.

Short term investing, I would say, is anything less than 10. Totally subjective.
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Nowizard
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Re: What Constitutes "Long term" Investing?

Post by Nowizard »

Thanks for the responses. They range from generally focusing on the accepted concept of long term investing itself to the specific of responding when the long term has become considerably shorter in terms of life expectancy. The comments about focusing on when the money will be needed is helpful and extends another commonly accepted investment recommendation of using MM for funds needed in a year or so to other periods out to as many years as one wishes to consider.

Tim
02nz
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Re: What Constitutes "Long term" Investing?

Post by 02nz »

Nowizard wrote: Thu Jun 17, 2021 4:43 pm They range from generally focusing on the accepted concept of long term investing itself to the specific of responding when the long term has become considerably shorter in terms of life expectancy.
The investing time window isn't necessarily limited by one's life expectancy though. As an example, an 80-year-old may only expect to live less than 10 years, but if his/her anticipated expenses are already covered by other income streams, then he/she is investing for heirs and/or charity, and the investing time frame does stretch well beyond his/her lifetime.
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One Ping
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Re: What Constitutes "Long term" Investing?

Post by One Ping »

How timely ... Craig Isrealson in this months AAII Journal has an article titled How long is the long run?.

Bottom line: "The long-run for investing in large-cap U.S. stocks is at least 30 years (assuming that a 70% success rate of achieving a long-run return is used as the threshold) and 25 years for small-cap U.S. stocks."

The long-run return he uses to measure 'success' is the 95-year long-run return.

Members can read the whole article, otherwise, you have to give an email address ...
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trek83
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Re: What Constitutes "Long term" Investing?

Post by trek83 »

SimpleGift wrote: Thu Jun 17, 2021 9:29 am Rather than engage in an abstract discussion of "What is long term vs. short term," a more practical approach is to ask "When does the investor need the money?" Only then can one reasonably assess the volatility and return characteristic of various investments against one's specific time horizon. For example:
  • When is the Money Needed?
    1 Year.........Money Market Fund
    5 Years.......5-year Bonds
    10 Years.....50% 10-year Bonds, 50% Diversified Stocks
    30 Years.....20% 30-year Bonds, 80% Diversified Stocks
Otherwise, an abstract discussion of, say, whether 10 years is long term goes nowhere. How far is a long way? How short is a short string? You see the difficulty with delving into the abstract here.
Bucket plan of expenses/ anticipated spending in action. Nice. Thanks SimpleGift

Can even think about ST Bonds 2-3 years of expenses

Medium / Total Bond Market 4-5 years

But essentially the same as above.

SS &/or a Pension of steady , dependable income could push stock allocation up a bit - but that assumes higher returns from stocks - which may be a poor assumption! ( as discussed above ).
Normchad
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Re: What Constitutes "Long term" Investing?

Post by Normchad »

SimpleGift wrote: Thu Jun 17, 2021 9:29 am Rather than engage in an abstract discussion of "What is long term vs. short term," a more practical approach is to ask "When does the investor need the money?" Only then can one reasonably assess the volatility and return characteristic of various investments against one's specific time horizon. For example:
  • When is the Money Needed?
    1 Year.........Money Market Fund
    5 Years.......5-year Bonds
    10 Years.....50% 10-year Bonds, 50% Diversified Stocks
    30 Years.....20% 30-year Bonds, 80% Diversified Stocks
Otherwise, an abstract discussion of, say, whether 10 years is long term goes nowhere. How far is a long way? How short is a short string? You see the difficulty with delving into the abstract here.
This isn’t what I would have come up with, but I really like it a lot. And I agree this is the right way to think about it. I cringe when people ask “how should I invest my home down payment money”.

My basic take, when I say I’m in it long term,is 20+ years. Or as much as possible, I don’t plan to ever sell. I will of course sell when I’m old and need the money for living expenses. But in general, when I invest, I intend to leave it alone for decades. And 30 years into it, that’s what I’ve done with 95% consistency.
VanGar+Goyle
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Re: What Constitutes "Long term" Investing?

Post by VanGar+Goyle »

Long Term Capital Gains are over 1 year, but I would say that Long Term Investing is at least one market cycle,
one crash, one panic, one bubble, at least one President, and a war. So at least 10 years.
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mr_brightside
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Re: What Constitutes "Long term" Investing?

Post by mr_brightside »

personal opinion is 10+ years

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BogleFan510
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Re: What Constitutes "Long term" Investing?

Post by BogleFan510 »

mr_brightside wrote: Sat Jun 19, 2021 2:45 pm personal opinion is 10+ years

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+1
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HomerJ
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Re: What Constitutes "Long term" Investing?

Post by HomerJ »

David Jay wrote: Thu Jun 17, 2021 8:59 am It is common language to say that funds for use within the next 5-7 years should not be in stocks. So "long term" is something longer, perhaps 10+ years.
10+ seems like a reasonable assumption.
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HomerJ
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Re: What Constitutes "Long term" Investing?

Post by HomerJ »

SimpleGift wrote: Thu Jun 17, 2021 9:29 am Rather than engage in an abstract discussion of "What is long term vs. short term," a more practical approach is to ask "When does the investor need the money?" Only then can one reasonably assess the volatility and return characteristic of various investments against one's specific time horizon. For example:
  • When is the Money Needed?
    1 Year.........Money Market Fund
    5 Years.......5-year Bonds
    10 Years.....50% 10-year Bonds, 50% Diversified Stocks
    30 Years.....20% 30-year Bonds, 80% Diversified Stocks
Otherwise, an abstract discussion of, say, whether 10 years is long term goes nowhere. How far is a long way? How short is a short string? You see the difficulty with delving into the abstract here.
That is pretty good... Although I don't see any problem with have 5-year bonds all the time, and just rolling them over 10 year or 30 year periods.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
GoneOnTilt
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Re: What Constitutes "Long term" Investing?

Post by GoneOnTilt »

Nowizard wrote: Thu Jun 17, 2021 8:11 am One of the most common guidelines for investing is to stay invested for the long haul, an adage that is often discussed when the market is turning downward and questions about reducing exposure to equities or bonds increases. Does the definition of "long haul" vary depending on where one is in the investing cycle. For example, it is clear that a 35 year-old has a long investing history ahead. However, a friend in his 70's who depends on withdrawals from his portfolio to meet expenses recently asked what he should do if there is a market correction. He did pull out entirely during early Covid19 days. More concretely, is "long haul" three years, five, ten, forever, and how should it be defined as one's life expectancy becomes much shorter? What possible differences does this make for older investors?

Tim
Vanguard has a great "Risk Potential" scale that it uses for each fund, which is rated 1 - 5. The risk level includes a recommended investing time horizon. That's what I use for my guide. It can be applied to other non-Vanguard funds with similar asset allocations. Your friend might find it helpful to look at. He can see it on any Vanguard fund profile under Risk Potential.
Last edited by GoneOnTilt on Sun Jun 20, 2021 7:44 am, edited 1 time in total.
mptfan
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Re: What Constitutes "Long term" Investing?

Post by mptfan »

David Jay wrote: Thu Jun 17, 2021 8:59 amSo "long term" is something longer, perhaps 10+ years.
I agree, I think long term investing is 10 years or longer.
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Re: What Constitutes "Long term" Investing?

Post by sycamore »

I may have missed it but does this conversation answer this other part of the OP question:
Nowizard wrote: Thu Jun 17, 2021 8:11 am how should it ["long haul"] be defined as one's life expectancy becomes much shorter?
And an implicit question is: what to do with stocks as the long term turns into short term?
Another one: if we use life expectancy/horizon to determine whether to buy stocks initially, should we use it to decide to sell later on in life?

Scenario 1:
Let's say I'm 70 with 15 years life expectancy. Assume 10 years is considered long term so it's okay to hold stocks.

5 years go by and I'm 75. Life expectancy drops not quite by 5 years to around 11 but still above the original 10 threshold. Should I change my definition of long term now? Presumably no.

Another 5 years go by and I'm 80. Life expectancy is around 8 so it's below the 10 threshold. Should I change my definition of long term now? Presumably yes, but to what? And should I sell stocks? How much?

Questions like these make me think it's better to pick an asset allocation and stick with it. Using a glide path to a static AA would be good too.
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Re: What Constitutes "Long term" Investing?

Post by Ron »

02nz wrote: Thu Jun 17, 2021 5:03 pmThe investing time window isn't necessarily limited by one's life expectancy though. As an example, an 80-year-old may only expect to live less than 10 years, but if his/her anticipated expenses are already covered by other income streams, then he/she is investing for heirs and/or charity, and the investing time frame does stretch well beyond his/her lifetime.
Correct.

My wife/me are both 73, and in some circles we should be more conservative in our AA rather than the 60/40 target we're currently using at our age.

However, in our case we're investing for our (disabled) son's future, who will turn 51 this year.

We meet the criteria of having more income than we need through retirement benefits (SS, pensions, SPIA, VA disability, HRA) along with annual RMD's and we choose to invest to meet his future needs rather than our current ones.

- Ron
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Re: What Constitutes "Long term" Investing?

Post by hudson »

Nowizard wrote: Thu Jun 17, 2021 8:11 am However, a friend in his 70's who depends on withdrawals from his portfolio to meet expenses recently asked what he should do if there is a market correction. He did pull out entirely during early Covid19 days. More concretely, is "long haul" three years, five, ten, forever, and how should it be defined as one's life expectancy becomes much shorter? What possible differences does this make for older investors?

Tim
Using Vineviz's formula, his average duration would be 10 years viewtopic.php?p=5207938#p5207938

Every year the investor would re-adjust.

Current age...75
End Retirement....95

(((age at start of retirement + age at end of retirement)/2) - current age)
75+95 = 170
170/2 = 85
85-75 = 10
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Garco
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Re: What Constitutes "Long term" Investing?

Post by Garco »

I'm in my 70's. Retired for 6 years. I don't expect to live forever but I plan for a decade ahead. I am living on Social Security and RMD's from my 403b account. I also have money in a brokerage account. My investment style has gradually become more conservative but relative to my age it's "aggressive." In my 403b -- where 75% of my invested money is located -- I've got 62% in equities. I can imagine scaling that back -- nature, i.e., the market, may do that for me. And if I get to 80 I may cut back on equities quite a bit.
Fortune Seeker
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Re: What Constitutes "Long term" Investing?

Post by Fortune Seeker »

I made a chart a while ago that showed a distribution of outcomes you got while investing for certain amount of time in the past.

Here it is:
https://imgur.com/KnJ90FY

Horizontal axis is worst to best outcome, vertical axis are returns, different lines represent investing timeframe.

As you can see, there is much bigger difference between 10 and 20 year investment time frame than between shorter ones. 20 years are where even if you are really unlucky you would at least break even. And if you are even moderately lucky, your returns are excellent. So in my opinion everything under 20 years should probably be considered short term investing just on the basis of return distribution alone.
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Re: What Constitutes "Long term" Investing?

Post by tennisplyr »

When I consider long term, I’m thinking about my current life expectancy.
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Garco
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Re: What Constitutes "Long term" Investing?

Post by Garco »

I am over age 70. ALL of my investing is "long term." I don't invest to spend or consume. But I do draw cash as RMD's from my tax-deferred accounts, and I generate "income" from my brokerage account (most of which is reinvested).

My investing is also long-term in the sense that my most of my accumulated wealth is destined for the next generation -- my children and their families.

A very important aspect of "long-term" investing is that it involves tax planning -- how to maximize keep one's cash and the value of that cash to those who inherit it.
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