While we’ve discussed theand the top tips and strategies, we wanted to dig a little deeper into this approach. There are a number of advantages that simply cannot be realized when trying to time the market or participating in short term day-trading.
Below, we break down a few key benefits of long-term investing and why you should aim for longer buy & hold strategies in your investment approach and planning, rather than having a short-term mindset.
The returns on your investment can be based on more than just the money you directly deposit. Your investment can generate earnings, which can be re-invested to earn you even more interest, and this process can go on and on indefinitely. Time is your best friend when you want to get the most out of the power of compounding, which is why long-term investing is so beneficial even when you start investing with a small amount of money. When you aim for short-term investing, you cannot get the full benefits of compounding as your interest does not have enough time to build up this potentially exponential growth.
For example, over a 20 year period, your $20,000 deposit would be worth $24,104 when saved (at 1% annual return). When invested, however, and with the power of compound interest over that period of time, that deposit could reach $64,143 (at 6% annual return). As shown below.
Long-term investing can help you avoid emotional decision-making in your finances. When you fully adhere to a long term approach to investing, you can embrace the existence of market volatility without basing any of your financial decisions on it. You don’t have to worry about withdrawing your funds when the market is down or throwing money into a hot stock tip. You avoid locking in any losses and allow you to reap the rewards when the market rebounds. This can give you the peace of mind required to successfully invest your money and reach your goals.
The longer you stay invested in the market, the more chances you have for experiencing the best days of the market. These best days can add up, leading to more returns than an investor who keeps going in and out of the market. Your investment risk drops, as you avoid missing out on these big gains. In the long run, the market historically trends upwards, and so staying in the game will both help you benefit from the highs while also providing ample time for any dips to rebound.
You don’t need to be an expert day-trader or have advanced financial knowledge to remain invested over the long-term The main requirement is to have patience and trust – patience that your efforts will pay off eventually and trust in your chosen investment strategy, such as a robo advisory. With SmartWealth, we do the hard work for you and encourage a long term, buy & hold strategy to your investments. All you need to do is tell us the risk level that suits you, share your goals, and deposit your funds, and we’ll handle the rest.