Discover The Merits of Long-Term Investing
Being interested in and engaged with your investments is to be applauded. But there’s a potential danger in becoming too involved with day-to-day movements and how funds are performing, worrying over the latest share price shift or market panic. Markets move up and down – that’s the very nature of stock market investing.
When markets fall it’s natural to worry about what that means for the value of your own investments.
But it’s worth remembering that losses are only on paper unless you sell. The bottom line is that historically, markets always recover and that the most dependable way to create wealth is to take a long-term approach.
There are a number of benefits of long-term investing. Here’s a few of those benefits at a glance:
THE PROFESSIONALS HAVE GOT YOUR BACK
Some speculative investors choose to invest in individual companies, known as stocks. Yet choosing steady winners is not always easy, so you may decide instead to invest in a pooled fund, such as a unit trust, open-ended investment company (OEIC), or investment trust, that spreads risk across a wide variety of shares.
This way, you pass the responsibility of choosing where to invest to a qualified, professional fund manager who will do all the legwork and selection on your behalf.
The point of buying funds is to let the professionals worry about market movements – that’s what they’re paid to do.
All you need to do is adopt a buy and hold strategy. The main idea behind buy-and-hold is that you stay invested throughout market cycles, as even missing just a few of the best days can have a major impact on your long-term returns. It is said that the golden rule is that the stock market rewards patient investors.
THE MAGIC OF COMPOUNDING
Compounding is another reason to hang on to investments for the long-term, as it can seriously turbocharge your returns.
In simple terms your money earns a return in the first year, in the second year both the original cash and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is called compound growth.
Many companies pay dividends quarterly or half yearly which means that compounding can get to work more quickly. Reinvest those returns rather than take them as income, and the growth will compound. This means you’ll see your money grow – as long as positive markets mean the income being earned continues over the long term.
“The best way to achieve your long-term investment goals is to have a diversified portfolio.”
IT’S ALL ABOUT TIME IN THE MARKET – NOT TIMING THE MARKET
If you are investing for 10, 20 or even 50 years it’s likely there will be bad years along the way. Yet calling the top or the bottom of the market during any time period is not possible without a crystal ball. No bell rings for investors when it’s time to invest. Instead, by investing regularly through the cycle and sticking to your long-term plan, you can hope to reap the rewards.
Remember, it’s time in the markets, not timing the market that counts.
Long term investing could also help you cut costs. Changing your portfolio regularly can mean you incur lots of dealing charges as you will pay a fee every time you buy and sell a stock or fund. These charges can eat into your returns.
The best way to achieve your long-term investment goals is to have a diversified portfolio.
Getting professional advice on how to do this can go a long way towards growing your savings into a meaningful fund.