Beat Traders By Investing Long Term!

Here’s how you could outperform traders over the coming years.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For many people, the opportunity to make a quick buck is highly alluring. While it has been done in the past and will undoubtedly be done in future, the odds of getting rich quick are very much stacked against the individual investor. That’s at least partly because the business world moves slowly and also because share prices are exceptionally difficult to predict in the short run.

In terms of the former, it takes time for a company to make the necessary changes to its business model and products and deliver improved financial performance. This may take the shape of expansion into a new territory, an investment in marketing or an acquisition that adds new products to the company’s inventory. While optimism may be high following any of these changes, the reality is that it can take a number of years for them to have a material impact on the company’s bottom line. As such, buying shares in a company and expecting a quick turnaround is not only unusual, but rather unrealistic.

Play the long game

Accurately and consistently predicting share price movements over a short period of time is incredibly difficult. While long-term investors are able to assess the financial strength of a business, its valuation and various other fundamental aspects of it, short-term traders usually follow a trend. Although trends can of course continue, the reality is that following the market and the investment herd can cause an individual to buy high and sell low. In other words, they may buy a stock because it has risen, when in reality the best time to buy in terms of capital gain potential may be just after it has fallen.

Although it’s possible to get it right on short-term trades, vast sums of personal wealth don’t tend to be made or kept for the long run through adopting such a strategy. However, for long-term investors, the power of compounding can lead to life-changing returns from a portfolio that started off as a relatively modest amount. For example, a consistent return of 7% per year can lead to a debt-free lifestyle or early retirement for many people. And although such a situation may not be as exciting as short-term trading, there’s no equivalent Warren Buffett in the world of short-term trading. In other words, there’s no individual who has made of tens of billions of dollars this way.

As well as the potential for higher gains, investing for the long term can be a lot less stressful and less time-consuming than buying and selling on a frequent basis. That’s because it’s less time-intensive and because investments are given a multi-year time horizon, there’s no panic if they underperform in the meantime. Furthermore, buying and selling less frequently can mean lower dealing costs as well as a more stable financial outlook.

So, while the promise of a quick gain is appealing to all of us, the reality is that investing for the long term may be more profitable, less stressful and more accessible for individuals who have a full-time job and other commitments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »