In times of market volatility and fear-mongering headlines, it is easy to feel like successful investing requires constant focus and action. For multiple reasons, it is crucial to stay patient and focused on long-term investing. It can be extremely difficult to time the market, even for the most seasoned investors. Emotion and psychology play a large role in decision-making when it comes to investing.

Even with a sharp mind and good timing, it is hard to replicate successful returns over a long period of time. Long-term investing without frequent trading is often the best strategy, and historical trends have shown that. When it comes to the markets, patience is a virtue—and one of the most effective tools an investor can wield.

Psychology of Investing

Investing isn’t just about the numbers. Emotion and psychology play a large role. Two of the most common dangers in investing are fear and greed. Fear of the unknown can lead to panic selling during market downturns. Alternatively, during market rallies, greed can cause impulsive buying. In reality, panic selling will likely happen near the lowest prices, and impulsive buying will occur at market highs.

Outside noise can also impact decision-making. You overhear a colleague talking about the next “can’t miss” stock. You don’t want to miss out, so you may decide to invest a portion of your savings in something you just heard of that day, or you hear from a friend that they are extremely worried about a recession, and they are thinking about liquidating their investments to hold in cash. These are both examples of outside noise that can negatively impact an investing strategy. Sticking to long-term goals in times of volatility is difficult but will likely lead to the most long-term success.

The Case for Long-Term Investing

The reason it is so important to stay disciplined and focus on long-term goals is that the markets have trended upwards over time despite volatility. The S&P 500 is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States. Over the last 30 years, it has returned just over 9% annually. That includes years such as 2008, when the index dropped over 36% in one calendar year. Despite short-term losses, the markets have always bounced back historically. Another benefit of long-term investing is compound growth. A common principle in investing is the rule of 72. This states that if you divide 72 by a specific growth rate, you'll get the estimated number of years it will take to double an investment. A 7% return would take 10.3 years to double a portfolio, and a 10% return would take just 7.2 years. This shows that compound growth over time can be one of the most powerful tools in an investor’s strategy.

It can be a struggle for even the best investors and professionals to time the market. One possible reason for this is the Efficient Market Hypothesis, which suggests that market prices already reflect all available information, making it difficult to predict future movements. Additionally, the market is influenced by numerous, often unpredictable factors, and even the most experienced professionals face difficulty in accurately forecasting these shifts.

Examples of this can be seen quite often, and even recently. Over a four-day trading period in April of this year, the S&P 500 index lost over 12%, and then saw a quick bounce back of about 9% in one day. In hindsight, the best option was probably to just do nothing and not worry about the short-term volatility. Some looked at this as an opportunity to invest at lower prices. However, it can be difficult to time the market. It would be impossible to know what “the bottom” would actually be, and some who had been waiting on the sidelines with cash, waiting for the best time to buy, ended up doing nothing. People say, “I am going to wait until it drops more before buying,” and just like that, an opportunity was missed.

The Importance of Patience

With all of these factors, it becomes clear that patience is one of the biggest keys to investing. Keeping a long-term perspective and focusing on long-term growth has more potential for success than the alternative. Staying patient even in times of high volatility takes a lot of rational decision-making. Avoiding following the crowd or listening to a colleague who always has the next “get rich quick investment” is not always easy.

A popular quote used a lot by Warren Buffett comes from Napoleon: “A genius is the man who can do the average thing when everyone else around him is losing his mind.” It is not flashy or fun to “set it and forget it" when it comes to investing. But often, it is the most dependable strategy. For example, on average, if you were to miss out on the best 10 days of the market each year, your annual return could be cut in half. Trying to time it might cause you to miss some of those days.

Goal Setting and Follow-up

So, how do we learn to stay disciplined and focus on long-term strategies? There are a few different things that are important to keep the right perspective when it comes to investing. The first is to set clear and long-term goals. These goals shouldn’t necessarily have dollar figures attached to them, but they should align with what is important to you. Are you charitably motivated? Do you just want to make sure your family is taken care of? Do you want to travel in retirement? Finding out what motivates you can be crucial to a long-term strategy. Once you have set your goals, it is important to talk with a financial professional who can help you build an investment strategy that is suitable for your goals.

Finally, once you set your goals and pick a strategy, you aren’t done. Your life is always changing, and motivations can change as well. Regular reviews of your goals and strategy will help make sure that your plan remains on track.

For more than 100 years, Busey Wealth Management has been here to help ensure our clients stay on track with their financial goals with tailored solutions and expert guidance. To learn more, visit busey.com/wealth-management.

This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.