Long-term investing is more rewarding for your life goals

• Long-term investments are responsive to your life goals, and evolve with your changing requirements.
• The time you stay invested matters more than timing and results in more positive outcomes.
• Starting early, making consistent contributions, and diversifying the portfolio are important elements.

Just before he got married, Hamad started saving a portion of his salary every month. While he is investing some of the money he has saved, he is aware he needs to increase his investments in preparation for their future.

Long-term investments are designed to mature alongside the investor. With forward-planning, long-term investments can help you navigate future life goals such as education funding, retirement, or career pathways.

What is long-term investing?

Asset types include stocks, Sukuk, real estate, and other Shari’a compliant investments. What matters is the time horizon. Investors typically plan these in such a way that they will generate expected returns over an extended period of many years or decades. While these are stable investments, they also show potential to grow in value over time.

A typical formula for evaluating an investment is:

Long-term investment annual return = (Final value - initial investment / Initial investment) X 100

This will help assess the annual rate of profit on your investment.

When assessing an asset for its long-term investment potential, check for growth across sectors, but also analyze historical performance of the asset over the last couple of decades to understand the returns on any investment. A key thing to assess is whether the investment includes regular payouts, or is the growth cumulative. A diversified investment portfolio is crucial for a long-term approach.

Why is time more important than timing?

The right time to start your investment journey is now. Trying to time the market to maximize gains is a short-term approach. Staying invested for a longer period is more beneficial than trying to navigate the ups and downs of the market over, say, one year. Historical data has shown that investments held for longer periods are comparatively more rewarding than those held for shorter periods.

The best course for your portfolio is to start your investment journey early, make consistent contributions, and ensure a diversified asset mix.

How to align investments with life goals?

The first step is to identify your life goals and intentions. For example, do you wish to travel a lot, study more, retire early, or build a multi-generational home? Do you wish to invest in Sharia-compliant assets, or have the desire to support any causes that are dear to you? Once you know the milestones on your life journey, you can plan your financial milestones around it. Implement a financial strategy that optimizes your contribution based on family dynamics, career plans, and your values.

Remember to review and adjust your financial plans as your life milestones continue to evolve.