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Investing for the long-term

What's great about today's market environment are the investment opportunities if affords. But before you jump in, have a plan if you're a seasoned fund investor or a first-time a beginner.

No matter where you stand on the wealth-accumulation chart, investing via Wall Street requires both a long-term plan and a mindset.

Once a conscious decision to become a long-term investor has been made, developing a long-term investment plan means understanding that what long-term means to you can be infinitely different that what it means to investment professionals. To a Wall Street analyst, for example, the definition of long-term investing can be surprisingly short.

Ken Broad, portfolio manager of the Transamerica Premier Growth Opportunities Fund (TPSCX) says that Wall Street's view of long-term is six months. "A Wall Street analyst's job is to look over the next two quarters and say what the prospects are ( of a certain company). So, you could see Wall Street neutral on a stock that has good long-term prospects."

Broad, like most fund managers, sees long-term investing as having more legs. When selecting stocks for his fund, the long-term time horizon he uses is three to five years.

Duncan Richardson, portfolio manager of the Eaton Vance Tax-Managed Growth fund (EXTGX), thinks of long-term holding periods for the stocks in his fund as "five years to forever." The reason for this longer holding period is because his fund is managed to minimize tax consequences for fund shareholders. And, odds are, the lower the turnover in the fund's portfolio, the fewer tax consequences there will be for its investors.

There isn't a one-answer-that-fits-all when it comes to defining "long-term" to Wall Street's professionals. But according to Broad, in the mutual fund arena it's really the fund's investment philosophy that dictates the meaning more than anything else.

From an individual's point of view, long-term investing is a means to an end that requires planning as well as changing.

"The reality of the equity market is that you have to be prepared to lose some money during certain periods," says Duncan Richardson. " So, investing for the long-term involves setting realistic goals."

Realistic goal setting means creating a long-term plan that you know will change over time just as your life does. For example, someone retiring at age 62 today has different long-term investment plan than they had 20 years ago. And, it's a much different plan than a young married couple's plan who have a 2-year old child.

But if there's one constant to long-term investing schemes on both sides of the fence --the investment professional's and the individual investor's -- it's risk.

"Being a long-term investor gives you more time to achieve your goals and it really lets you take on, or accept, a little bit more risk, " says Steve Savage, editor of the No-Load Fund Analyst, a top-ranked mutual fund investment newsletter.

Risk, however, is something that Savage says investors don't always understand. "In March of 2000, investors perceptions of risk was at a low point because everything had been going great while the actual risk (in the market) was huge. Right now, investors perceptions of risk is really high when the risk, over a multi-year period is really low."

In the end, diversifying fund investments by investment types and style, creating an asset allocation plan and rebalancing it when necessary are all ways that can minimize risk --and market volatility ---to one's long-term and well-thought through portfolio.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

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