It is easy to have tunnel vision when it comes to investing especially when there is so much uncertainty in the financial markets. While it is important to always know where you stand it is also important to take a long term perspective when investing. Now we have seen a stock market correction of a magnitude not seen since the 1930’s. It is definitely scary but from a long term perspective the market is likely to trend up over the next few years. Taking a long term perspective makes it much less scary.
Let’s look at interest rates with regard to a long term outlook since they are crucial to both the economy and investing. In early 1972 the prime rate which is the interest charged by banks on short-term loans to businesses was 4.75%. Only 2 and a half years later the prime rate was 12%. It rose to 20% in the early 1980’s. At that time municipal bonds were paying up to 20% interest tax free and selling at deeply discounted prices. Most of those bonds were eventually called by the issuers but an investor was able to lock in those high interest rates for over a decade by having the confidence and knowledge to invest wisely in the midst of great fear in the financial markets. Can you even imagine buying a bond at a discounted price that pays 20% tax free in today’s paltry interest rate environment? This equates to a 30% interest rate on a taxable bond! An investment like that can definitely change your lifestyle for the better!
How does one gain this level of confidence and knowledge? First it is always important to pay attention to what is happening in the financial world by having a regular weekly or daily time to simply read or watch the news. The second important area is to make sure you understand the fundamentals of investing by educating yourself through courses and books. Finally having a long term perspective helps you recognize opportunities as they present themselves. These three disciplines will prepare you to act with diligence at the appropriate times and in investments that hold the most potential.
