Retirement Tips: A Guide to Long-Term Investing

08.22.2025 | Category: Navigating Your Retirement

Estimated read time: ~7 minutes

Professionally Reviewed by: Adam Olson, CFP, LUTCF, FSCP, RICP

Summary: This article explains how to build wealth, reduce risks, and find financial security in retirement through long-term investing.

Everyone dreams of retiring comfortably and living their best life without worrying about running out of money. But how achievable is this dream?

Many retirees have found success because they invested early, had a strategic plan long before retiring, diversified their investments, and maintained consistent discipline with their savings and spending.

Investing for the long term can be a great path to build wealth for retirement.

What is long-term investing?

Long-term investing is a strategy that maximizes compound growth, minimizes risk and helps to ensure that you won’t outlive your savings. It involves putting your money into assets that you will hold on to for the long term, typically five or more years. This often means investing in things like:

Stocks and stock index funds
Exchange-traded funds (ETFs)
Bonds and bond funds

Long-term investing differs from short-term investing, which involves buying and holding assets for shorter periods of time with the goal of making profits from short-term market fluctuations. The goal of long-term investing is not to make a quick profit, but to grow your wealth steadily over time through capital appreciation and compounding returns. If you start early in your working years, this strategy should pay off when you reach retirement age.

Long-term investing also provides tax benefits you wouldn’t get with short-term investing. When you hold an investment for more than a year before selling, any profit is typically taxed at the long-term capital gains rate, which is lower than the rate for short-term gains. Short-term gains are taxed as ordinary income, which can be considerably higher depending on your tax bracket.

The power of compound growth in long-term investing

Compound growth is one of the primary advantages of long-term investing. This is when your money earns interest, and the interest you gain also earns interest.

For example, if you invest $10,000 at a 7% annual return, every year your account would earn $700 in simple interest. However, with compound interest, you’ll earn 7% on your principal balance of $10,000, as well as the interest you’ve earned. So, you would now earn 7% on that $10,700, and the next year you’d earn 7% on the new amount.

With compound interest, even modest contributions can snowball into significant gains. Billionaire Warren Buffet used this strategy to earn 98% of his wealth after he turned 65.¹

How long-term investing reduces risk

The stock market can be risky when you focus on short-term investing or try to time the market. Mutual of Omaha Certified Financial Planner and Wealth & Retirement Strategist Adam Olson says, “I typically suggest investing only if your time horizon is five years or longer. For example, if you’re saving for a major expense like a home down payment within the next three years, it’s generally best to keep those funds in cash. Options such as a money market account, certificate of deposit (CD), or high-yield savings account can offer potentially modest returns while helping to preserve liquidity.”

However, history shows that the overall stock market grows consistently over the long-term. For example, the S&P 500 has had an average rate of return of about 10% over the past decades, despite various dips and even crashes in the market.²

With long-term investing, you give yourself time to recover from downturns. You stay the course through market volatility, and avoid reacting to drops in the market. One long-term investment strategy is dollar-cost averaging, in which you invest a consistent amount at regular intervals, regardless of market highs or lows. Dollar cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue the program through all periods of low price levels or changing economic conditions. Such a plan does not assure a profit and does not protect against a loss in a declining market. Olson adds, “Most people are already doing this, commonly when you invest in your 401k plan at work. Every time you get paid, you are consistently adding to those accounts.” This can help you manage risk and possibly lower your average purchase price over time, while helping to reduce the emotional stress of trying to time the market.

Retirement investing tips for the long-term

Long-term investing is essential for building a retirement plan that can keep up with inflation and rising costs to help support your future lifestyle. Here are a few tips to keep you on the right track:

1. Start early

It’s never too early to invest in your future. Even if you can only contribute a small amount each month, that consistency counts toward building your nest egg. The power of compound interest can help your money grow over the years.

2. Contribute to retirement accounts

Most employers offer 401(k) accounts for full-time employees, with automatic pre-tax contributions from your paycheck. If your employer offers to match your contributions, take advantage of it by contributing at least enough to get the full amount. For example, if your employer matches up to 3%, ensure that you contribute at least 3% to your 401(k).

If you don’t have an employer-sponsored 401(k), talk to a financial advisor who can help you set up automatic transfers to a traditional IRA (pre-tax income) or Roth IRA (after-tax income).

Olson says that investors should consider a few things when deciding where to invest, adding,

“Many have saved diligently over the years, but their nest egg is held in pre-tax accounts like a traditional IRA. This means that every dollar they withdraw is subject to income tax. For example, if a retiree wants to spend $10,000, they may need to withdraw closer to $13,000 to cover the tax liability. This extra tax burden often discourages retirees from enjoying the money they worked so hard to save. If they had invested in an after-tax Roth IRA, they would just need to withdraw the $10,000 they need.”

3. Diversify

To minimize investment risk, it’s wise to diversify your portfolio. Investment diversification is a risk management strategy that involves spreading your investments across different asset classes, industries, and geographic regions to help reduce the overall risk in your portfolio. That way, if one investment dips, you can count on other investments to maintain your portfolio.

4. Rebalance your portfolio occasionally

During market fluctuations, rebalancing your portfolio can help bring your investments back in line with your long-term strategy.

5. Work with a professional

A professional financial advisor can help you plan a long-term investing strategy that meets your goals. They can also help you stay grounded during market fluctuations and maintain focus on your long-term goals.

6. Stay the course

During periods of market uncertainty, you may feel hesitant about sticking to your investment plan. Remember, market fluctuations are normal, and staying the course can help you reach your long-term goals.

Mistakes to avoid in long-term investing

Building your retirement nest egg through long-term investing requires a disciplined approach and avoiding common pitfalls that can derail your goals. Here are a few mistakes to steer clear of:

Trying to time the market – It’s almost impossible to predict short-term movements in the market. Instead of following the “buy low, sell high” model of investing, adopt a mindset of “slow and steady wins the race.”
Chasing hot stocks or market trends – Just because everyone else is buying a stock, doesn’t mean it will pay off. Don’t let the fear of missing out affect your long-term investment plans.
Ignoring fees and taxes – Many investors overlook investment costs, like commissions, management fees and capital gains taxes. Even small costs can compound over the years and erode your returns.
Withdrawing early – Stay the course with your investment strategy, even in a market downturn. Withdrawing or selling your assets too early may cost you taxes and penalties. Historically, down markets usually recover in an average of about 15 months.
Not increasing contributions over time – As your income grows, put more into your long-term investment plan. Experts recommend investing between 10% and 15% of your income, or more if you need to catch up or speed up the process. Additionally, consider taking a portion of any annual raises and use it to increase your contributions.

Build your retirement through long-term investing

Long-term investing is about building financial security for your retirement years. By starting early, staying consistent and sticking to the plan, you can grow your wealth and retire with confidence.

Not sure where to begin? A Mutual of Omaha financial professional can help with retirement planning tools and personalized guidance to help you build a long-term investment strategy that fits your lifestyle.

Frequently Asked Questions

How much should I save for retirement if I’m in my 40s or 50s?

Ideally, you want to start long-term investing for retirement as soon as you earn a consistent income in your 20s. However, it’s never too late to save. If you are starting later, consider contributing more of your income. Olson offers, “You should aim to save 20-25% of your income. A simple way is to start with saving 10% in your 20s, 15% in your 30s and 20-25% in your 40s.” Once you turn 50, the IRS allows you to make annual catch-up contributions to your retirement account, which is a good idea if you get a later start on saving.

What’s the difference between a Roth IRA and a traditional IRA?

The difference between a Roth IRA and a traditional IRA is in how they are taxed. A Roth IRA is funded with after-tax dollars and grows tax free. Meanwhile, a traditional IRA uses pre-tax dollars and is taxed when you withdraw funds. There are benefits to both a Traditional or Roth IRA depending on your needs. You should speak with a financial advisor to see what’s best for your particular situation. Olson elaborates, “Making Roth contributions now allows you to access tax-free income in retirement. The idea is to pay taxes while you’re working and have the cash flow to support it, so you can enjoy tax-free withdrawals later.”

Can long-term investing help me retire early?

Yes. Long-term investing is a key part of the Financial Independence Retire Early (FIRE) movement. Those in the FIRE movement aggressively save and invest so they can retire in their 40s or 50s. If retiring early is a goal for you, aim to increase your savings rate to 30-40+%.

Sources:

Yahoo Finance, Warren Buffett Shows How Patience Pays: 98% Of His $160 Billion Wealth Came After Turning 65, Thanks The Power Of ‘Compound Interest, May 2025
Investopedia, S&P 500 Average Returns and Historical Performance, May 2025

Expertly Reviewed by Adam Olson, CFP, LUTCF, FSCP, RICP

I’m a Certified Financial Planner, author and podcast host with a deep passion for helping clients navigate all aspects of personal finance, from financial planning and investment management to life and health insurance. My goal is to empower individuals and families with the knowledge and tools they need to make confident financial decisions. My wife, Katie, and I live in Norfolk, Nebraska, where we are raising our four boys.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. Past performance is no guarantee of future results.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

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