Everyone always talks about investing (and planning) for the long term. But they’re usually vague about what the “long term” actually means. Does that mean 5 years? 10 years? More? (Spoiler: the answer is definitely more). And frankly, talking about how you need to focus on the long term can feel like a bit of a dodge when the markets haven’t been cooperating.
Let’s dig in and think about what “long term” actually means – both in theory and practice.
First, let’s discuss theory. Why does investing for the long term matter? It’s not like the market keeps score and will toss us a couple of good years if we have had a run of bad years, or will keep us honest by throwing a bad year into a bull run. The market is way too messy for that. Financial returns are nearly random. A good way to see this is