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Benefits Of Long Term Investment

Investors who choose to invest for the long term rather than trying to time the market or day-trade over the short term can take advantage of a number of advantages that those other types of investors simply can't. If you're investing for the long term, you can expect to enjoy a smoother, less emotional ride.

WHAT IS A LONG TERM INVESTMENT?

Long term investments are assets that an individual or company intends to hold for more than three years. This type of investment usually involves stocks, real estate, cash, etc. Long term investors are willing to take on more risk in order to achieve higher returns. In general, the longer the investment horizon, the higher the risk an investor is willing to take on. For example, someone investing for retirement may have a time horizon of 30 years, whereas an investor with a shorter time horizon may only be willing to invest in less risky assets such as government bonds.The long term investment account is different from the short-term investment account in that the short-term investments will likely be sold, while the long term investments will not be sold for years, or even decades. Long term investments are usually more stable, but they also have less potential for growth than short-term investments.

Long term investment in stock market generally has more risk than short term investment, but it also has the potential for higher rewards. It’s important to have enough capital available when you’re making a long term investment, because you’re essentially tying up that capital for a set period of time. A common form of long term investing occurs when one company invests a large amount of money in another company and gains influence over the second company without having a majority of the voting shares. In this case, the purchase price would be considered a long term investment.

BENEFITS OF LONG TERM INVESTMENT

Overall, taking a long term view of investing can be very beneficial. Not only will it help you avoid the stress and risks of trying to time the market, but it will also allow you to stay focused on your goals and make more informed decisions.

Investors who choose to invest for the long term rather than trying to time the market or day-trade over the short term can take advantage of a number of advantages that those other types of investors simply can’t. If you’re investing for the long term, you can expect to enjoy a smoother, less emotional ride. This is because you won’t be constantly trying to time the market, which can be a very stressful and dangerous endeavor. Instead, you’ll be focused on achieving your long term investment objectives. Of course, even if you’re investing for the long term, you’ll still need to keep your emotions in check.

OPPORTUNITY TO MAKE HUGE RETURNS

We know from decades of historical data that stocks have outperformed almost all other asset classes, and that investors have experienced a much higher rate of success over the longer term.
Stocks are always a solid investment choice if you’re in it for the long run. Many people forget that the value of a stock can continue to rise infinitely, whereas the lowest it can fall is to R0. That being said, it’s important to have a clear investment strategy with specific goals in mind so that you diversify your portfolio and increase your chances of making periodic dividend payments or capital gains from selling securities.

MINIMUM INVESTMENT RISK

Investing over the long run is one of the best ways to reduce your investment risk. By removing lost opportunities, you can avoid missing out on big market gains. Long term stocks are associated with lower risks when compared to short-term securities. Investment in small and mid-scale companies should be made for an extended period to mitigate the risk factor substantially as investors wait out the fluctuations in the share market due to external reasons. Alternatively, losses in the short term can be endured by large-scale companies as well, due to a fall in the production and/or sales rate. 

IT REMOVE EMOTIONS FROM THE EQUATIONS

One of the greatest aspects of long term investing is that it almost entirely removes your emotions from the equation. It may be one of the few instances in life where a less emotional approach is better, but when it comes to your finances, we recommend that you listen to your head and not your heart. If you’re tempted to abort the mission at the slightest market sneeze, you need the composure to step back and assess the situation. Be patient and keep your long term perspective intact. In doing so, they lock in their losses, interrupt the process of compounding, and place themselves at risk of poor market timing. However, those who are invested for the long term can reap the benefits of removing emotions from their decision-making and staying focused on the long term investment goals. 

EASY TO DO

You don’t need extraordinary trading skills or savvy financial know-how to remain invested over the long term – all you need is a great dose of patience and a strategy to make the most of your returns. It doesn’t take a Warren Buffett to pick out a portfolio of well-run businesses and hang onto them for 10, 20, or 50 years. Sure, you’re not always going to be right, but don’t worry, even the greatest investors are wrong a third of the time — or more. But with long term investing, there are no hassles about learning different trading styles or platforms since you won’t be an “active trader.”

LESS TRADING FEES

Every time you buy and sell an investment, you’ll be paying trading fees, so the more you jump in and out of the market, the higher your trading fees could be. The more an investor pays in trading fees, the fewer returns they’ll get to keep. Remaining invested for a number of years could help you keep these fees to a minimum and make the most of your returns. Every time you buy and sell stocks it costs money, which means the more you trade, the more fees you’ll be paying, and this will have a direct impact on your investment returns.

YOU WILL SLEEP BETTER AT NIGHT

My personal favorite is that being a long term investor will allow you to sleep better at night. You won’t have to wake up at the opening bell every day and decipher if your portfolio took a dive or exploded overnight. Chances are, the businesses you’re looking to invest in are high-quality companies, and thus their propensity to be volatile will be relatively low. Without the need to track indexes and market movements on a daily basis, you allow yourself the time and emotional space to focus on what is really important to you such as your family and loved ones, your career or business, lifestyle goals, continuous education, etc. 

COMPOUNDING

Buying stocks for the long term allows you to take advantage of compounding, or the ability to reinvest your profits (e.g., dividends) over time to generate even greater profit potential. Time is your greatest friend as an investor, and being able to reinvest a dividend at 3% can make a major difference in your wealth come retirement. As an example, simply pocketing a 3% yield will double your money about every 33 years, assuming no dividend or stock price growth. It’s important to remember that you will mostly benefit from the wonders of compound returns with a long term strategy. Only then can you truly make your money work harder?

GIVES YOUR MONEY MORE TIME TO GROW

The longer you remain invested, the longer your money has to grow. You’ll do this through the power of compound returns. Simply put, the longer you remain invested, the longer your money has to grow as a result of the exponential effects of compounding. Taking a long term view of your investments gives you more opportunity to reinvest your profits, which in turn increases your potential for further profit. Reinvesting your returns rather than cashing them in means harnessing the power of compounding which ramps up the longer you keep doing so.

SMOOTHES OUT MARKET FLUCTUATIONS

Firstly, knowing that you are invested for the long term helps you to ride out market fluctuations that are endemic to the environment. Market volatility is completely normal, and short-term fluctuations serve only to distract investors. History has shown us that over the long term markets move in an upward trajectory and that, while markets may fall, they have always bounced back. If you exit the market on a downturn, you effectively lock in your losses. On the other hand, staying invested – even when markets drop – means that you are in the markets when the tide turns. While the value of stocks can drop significantly over the short term, stocks/equities tend to deliver higher returns over the long term, despite financial setbacks such as Black Monday, the tech bubble, and the financial crisis. 

OUTSTRIPS INFLATION

Investing towards long term goals generally means that you are able to take more investment risk, with a greater share of your portfolio allocated to growth assets. It is common knowledge that when it comes to investing, the greater the risk, the greater the reward. With higher expected returns over the longer term, investors have a better chance of increasing the purchasing power of their money by outpacing inflation. Investing appropriately over a longer period of time will therefore reduce the risk that inflation presents to your invested capital.

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