Long term investing could help you maximize the growth potential of your savings by helping you navigate through the ups and downs of the stock market. Here’s why.
Even with all the convenience digital investment management platforms provide, investing should not be done spontaneously.
As soon as you decide to enter the investing scene, one important question you need to answer is for how long. Sticking with long-term investing for multiple years could yield numerous advantages; here are five such advantages.
It Could Help Ride The Market Bumps
As a beginner to investing, your first market drop can be very distressing, leading to panicked selling of investments – however this will only compound your woes further. By abandoning ship prematurely you are only compounding them further.
Simply consider: staying invested through troubled times may only seem to bring down a number on your dashboard; once markets return quickly enough, this figure could only go back up again. Should you manage to take your cash out before then though, this would result in real loss.
Black Monday will go down as an iconic moment in stock market history; when the Dow Jones Industrial Average lost over 22% on October 19, 19871. Many investors panicked, yet those who held steady were rewarded with total returns of 16.6% in 1988 and 31.7% in 1989 – this even after experiencing one of the steepest falls ever!
Though most investors can respond quickly and effectively to market knocks, even small ones, remembering the markets can go both up and down could help your investments recover from any sudden dives in value. Thinking long term when investing is essential in this regard.
One popular saying in investing is: ‘the ball may drop, yet you should always make sure you are there for its skip’.
Market volatility, when financial markets fluctuate erratically, can be an unnerving occurrence; long-term investment could help smooth out market shocks. History indicates that those investing in the FTSE 100 Index over any 10-year duration since 1984 had an 89% chance of making positive profits with their money2. Investing during periods of market instability might help investors manage the ups and downs more smoothly.
It Gives Your Cash More Opportunity To Potentially Develop
Longer investments mean more time for money to grow through compound returns.
How In All Actuality Do Intensify Brings Work Back?
Imagine a snowball rolling downhill, steadily gathering more snow as it rolls, to get an idea of the way compound interest works. Your earnings from investments get reinvested each year to grow your wealth over time.
Planning ahead can help you take full advantage of compound returns.
Here’s An Example Of Compound Returns:
Joe invests PS10,000, earning 5% profit annually on his investment. In year one, this resulted in PS500 being returned back into his asset. By year two, however, Joe made an arrival of PS525, due to having not only made money on his initial PS10,000 but also from investing the profit earned the previous year (PS500 invested profit plus additional interest earned)! If repeated for several years running, compound returns would help Joe’s investments flourish even more successfully.
It Means Less Trading Fees
Each time you trade an investment, trading fees will apply; as more often you enter and exit the market, your fees could increase accordingly. Furthermore, paying more in fees reduces returns; remaining invested for several years could help to keep these to a minimum while making more profit overall.
It’s Easy To Do
Staying invested over the long haul doesn’t require extraordinary trading abilities or financial expertise – all you need is some patience and an investment strategy in mind to increase profits over time. One way of doing this would be taking out a Stocks and Shares ISA which allows investors to invest up to PS20,000 each year (though this figure could change) without having to pay tax on any profits earned; further benefits include no capital gains tax and no income tax payments on gains made – find out more by visiting here.
Launching an Individual Savings Account is simple with Wealthify’s robo-investing platforms; all that’s required to start investing is selecting an amount and risk level suitable to you.
It Could Assist With Removing Feelings From The Equation
Financial decisions require a logical, non-emotional approach, so when it comes to your finances it’s wise to listen to your head instead of your heart. If the market dips unexpectedly and your first reaction is to abandon mission, take time out to assess your options first before making decisions based on feelings instead of rational considerations. Staying focused on long-term goals could help avoid making emotional decisions in times of panic.