Investing can be wild and unpredictable at times, but being a long-term investor has loads of benefits that you may not know about. Let’s explore how an investing plan built for the long run can help you on your way to financial freedom.
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What is a long-term investing outlook?
Everyone has their own ideas about what is considered long-term. When it comes to investing, the minimum you should be thinking is five years ahead.
So a long-term investment plan means you want to be thinking at least ten years in advance.
This might sound like it’s really far into the future, but you’ll be surprised how quickly this time will roll around.
What are the benefits of long-term investing?
Investing over a number of years is the best option for most people. Adrian Lowcock, head of personal investing at Willis Owen, explains, “For many of us, it’s natural to want to get rich quickly. However, it’s important to remember that investing is an inherently long-term game.
“When you invest in a company, you are becoming an owner of that business, and sharing in its successes and profits, but you can also expect market downturns. When you have a long-term strategy, short-term fluctuations shouldn’t weigh too heavily on your overall returns.”
Below are six ways Adrian suggests long-term investing can benefit you.
1. Be less emotional
When it comes to our money, it’s hard not to be emotional. We work hard for it and so it means a lot to us.
However, this emotional attachment can affect our ability to invest successfully. The benefit of long-term investing is that you can ignore daily market movements. You’re not going to be using the investments any time soon, so you can focus on the big picture and avoid making rash decisions.
2. Be more efficient with your time
Day traders spend hours and hours poring over data and short-term share price movements.
If you have a long-term investing strategy, this foundation means you get to spend much less time managing and tinkering with your portfolio. It can be more work in the beginning, but you’ll be grateful in the years to come.
3. Start small
Many people get put off the idea of investing because they think they need a lot of money to do it.
The benefit of investing over a number of years means that even with small deposits, you could be just as successful as someone putting in a big lump-sum. You can invest regularly and watch as you get closer and closer to your goals.
4. Reduce the risk of losses
We all hate the idea of losing money. It’s this fear that stops a lot of people investing in the first place.
However, by investing for the long-term you can drastically reduce the risk of losing money. There’s no guarantee with investing that you’ll make money. But a diversified portfolio including quality companies you think will still be here in over ten years gives you a great chance of lowering the risk of losses.
5. Cut your costs
Trading shares on a regular basis can be quite expensive, especially if you’re not using a cheap share dealing account.
A long-term outlook can help you manage your costs better. Ultimately, this is going to help you create more gains as you’ll avoid paying too much of your money to other people. Opening a stocks and shares ISA and using your personal allowance each year can also reduce your tax liability.
Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.
6. Make the most of compounding
The magic ingredient to making compound interest work for you is time.
With time on your side, reinvested returns can make you unstoppable. Einstein even referred to this as the eighth wonder of the world! The longer you invest, the more you can make the most of your investments as your gains compound and grow.