ó The problem is "long-term" means different
things to different people.
some investors, a time horizon of one or two years could
be considered long term. Another investor may consider
long term to mean a holding period of 20 years or more.
There are no rules set in stone on the definition
because everyoneís situation is different.
of the first and most important things we do with any
client is determine their time horizon. Thatís
trickier than it sounds," said Aaron Leaman, chief
financial officer at Signature Financial Planning in
Pittsburgh. "If you are saving for college, the
time horizon is 18 years.
people think their time horizon is when they retire. But
thatís when they need the money to start, not
finish," he said. "Others think itís when
they die. They donít want to outlive their money.
wealthier clients tend to think generationally. They
want to leave money to their children and grandchildren.
Their time horizon could be hundreds of years if you
think in terms of leaving a legacy."
long-term horizon could even be forever. In cases where
a family or individual would like to endow a charitable
organization, they might want that money to last and
provide income forever.
have a client in her Ď80s who purchased shares of
Apple stock for $3,000 in the 1980s," Leaman said.
"Today those shares are worth $250,000. Some might
say she is too heavily invested in the one stock, but
the reality is she doesnít need the money. She plans
to leave the stock to her children."
the stock to her children will give the money a new
lease on life as far as the tax collector is concerned.
she were to sell the shares, her capital gains tax bill
would be huge. But when the children inherit the stock,
they wonít owe any capital gains taxes," he said.
your time horizon isnít your horizon. Sometimes itís
your kidsí time horizon. Thatís how we have to think
about time horizon. What is your goal for the money, and
how long will that take?"
there may be no singular definition of the term, it does
appear that the long term may be getting shorter.
to Boston-based Ned Davis Research, as of December 2015,
the average holding period of a stock on the New York
Stock Exchange was 8.3 months.
average holding period for a stock during the 1950s and
Ď60s was eight years.
the advent of online trading accounts, investors can buy
and sell stocks as easily as clicking a computer mouse.
In the 1950s and Ď60s, stocks were still issued in the
form of paper certificates and investors had to
physically visit a stockbrokerís office to make a
transaction ó often paying a hefty sales commission
for whatever service they received.
Internal Revenue Service makes a very clear distinction
between a short-term and long-term investment as it
relates to the taxation of realized gains.
investment held for one year or less is considered a
short-term investment. The realized gains from
short-term investments ó if any ó are taxed as
investment held for more than one year is a long-term
investment. The realized gains on long-term investments
are taxed at the lower capital gains tax rate of zero
percent to a maximum of 20 percent for those in the
highest tax bracket.
adviser Curt Knotick, CEO of Accurate Solutions Group in
suburban Pittsburgh, said the taxation of capital gains
in taxable accounts encourages investors to hold stocks
for longer periods of time.
need to be very careful when taking a shorter horizon
when trading stocks and mutual funds in non-qualified
accounts," Knotick said. "From a tax
perspective, if there are gains in our investment, those
assets held over one year are treated differently than
assets held less than one year.
a true long-term horizon for investing purposes benefits
not only the growth opportunity, but may minimize
taxation of those gains."
has proven that the tried-and-true formula for long-term
investing in the stock market is 20 years, according to
Nick Besh, a senior vice president and investment
director at PNC Bank in downtown Pittsburgh.
said the stock market, over 20-year periods going back
to the early 1900s, almost always produces a positive
return for investors who buy quality stocks and then
stay the course for two decades.
you invest in the stock market and you have 20 years to
invest, you will make money," Besh said, adding
that proper asset allocation can alleviate much of the
worry as stock prices rise and fall over time. Asset
allocation is a strategy that aims to balance risk and
reward by dividing a portfolioís assets ó stocks,
bonds, cash ó according to an investorís goals, risk
tolerance and investment horizon.
said there have only been two 10-year periods when
stocks did not make money. One of those came during the
Great Depression. The other was 2000-2010.
wealth managers generally agree that the best way to
have exposure to the stock market is to buy great
companies and hold them through any market condition.
stock market had the worst start to a new year in
history in 2016," Besh said. "Yet we finished
the year with the S&P 500 up by 12 percent. If you
didnít have a long-term perspective, you would have
short-term focus that many current investors have can be
traced back to painful losses they suffered during the
financial crisis of 2008. U.S. household wealth fell by
$16.4 trillion of net worth from its peak in spring
2007, about six months before the start of the
recession, to when things hit bottom in the first
quarter of 2009, according to figures from the Federal
lost confidence in the stock market," Besh said.
financial crisis of 2008 really shook their confidence
in believing in a company or stock. Thereís a lot more
trading rather than investing and holding a stock for
long periods of time. People sell when they see a profit
because they worry if itís sustainable."
hitting its lowest point in March 2009, the S&P 500
rallied 208 percent by January 2017.
valuations as high as they are now, people are wary of
holding stocks for a long time," Besh said.
"If they get scared and liquidate, thatís not
investing. Thatís timing the market.
comes back to asset allocation. You can only hold when
you have an asset allocation you are comfortable