How can you benefit from investing over the long term?
What is the advantage of getting an early start when investing?
Is it a good idea to try to time the markets?
When is the best time to begin a long-term investment program?
How can you benefit from investing over the long term?
One of the advantages associated with long-term investing is the potential for compounding. Here’s how it works: When your investments produce earnings, those earnings get reinvested and can earn even more. The more time your money stays invested, the greater the opportunity for compounding and growth. Keep in mind that while compounding, overall, can have a significant long-term impact, there may be periods when your money won’t grow. While there are no guarantees, the value of compounded investment earnings can turn out to be far greater over many years than your contributions alone.
What is the advantage of getting an early start when investing?
By starting to save early, you can benefit from the power of compounding, whereby the earnings of your account earn additional earnings. Over the course of decades, compounding can make a significant difference.
Take the example of two hypothetical co-workers, Jill and Edwin. Let's say they contributed the same amount of money to their firm's retirement plan for the same number of years ($100 a month for 20 years, for a total of $24,000 invested) and earned the same average annual return (8%). The only difference is that Jill begins making contributions at age 35, while Edwin waits until he is 45 to start. By age 65, Jill would have accumulated $130,519 while Edwin's balance would be $58,902.
Is it a good idea to try to time the markets?
In general, it’s a poor idea to attempt to time the markets. Too often, investors are spooked by a stock market downturn and flee the market. This can lock in losses and prevent investors from reaping the rewards when the market rebounds.
Consider the example of a hypothetical $10K investment in the S&P 500 Index made on July 1, 2013 and held for 10 years. Staying invested through the two bear markets during that period may have been tough, but this patient investor's portfolio would have nearly trippled. If that investor had instead tried to time the market and missed even some of the best days, it would have significantly hurt their long-term results — and the more missed "good" days, the more missed opportunities.While you may hear a lot of talk about timing the market, successful investing is more about time than timing.1
Missing just a few of the market’s best days can hurt investment returns
Sources: Standard & Poor's, RIMES, as of 06/30/2023. Values in USD. Past performance is not indicative of future results.
When is the best time to begin a long-term investment program?
No one has figured out the best time to invest. You can take the guesswork out of it by making a regular fixed-dollar investment, for example, every month or every paycheck. This is called dollar cost averaging. If you’re contributing to your retirement plan, you’re probably already using this strategy.
Because the prices ofinvestments fluctuate, dollar cost averaging allows you over the long term to:
Buy more shares when prices are lower
Buy fewer shares when prices are higher
Dollar cost averaging can lower your average cost per share of an investment, but it doesn’t guarantee a profit or protect against loss. You should consider your willingness to keep investing when share prices are declining.
Updated on December 22, 2023
Learn more about
Client Conversations Investing Strategy
1Hypothetical results are for illustrative purposes only and in no way represent the actual results of a specific investment.
The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
One of the advantages associated with long-term investing is the potential for compounding. Here's how it works: When your investments produce earnings, those earnings get reinvested and can earn even more. The more time your money stays invested, the greater the opportunity for compounding and growth.
Markets tend to be more volatile in the short term, but smooth out over the longer term. Instead of panicking during periods of volatility or trying to time the market, the savviest course is to stick to your plan that is based on your time frame and risk tolerance.
Because longer measurement periods mean more time for well-researched, high-conviction investments to perform well. Because they have time to build results, our investment professionals seek to avoid taking outsized risks in pursuit of short-term results.
Paying off a house, saving for retirement, and ensuring that you have enough money to pay for your child's college education are among some of the most common long-term investing goals.
To identify suitable companies, the investor must focus on the major drivers of long-term shareholder returns. They include a business's competitive advantage, its growth prospects, and the competence of its management team rather than quarterly reports and stock prices.
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
Going through a long-term financial planning process allows decision makers to focus on long-term objectives, encourages strategic thinking, and promotes overall awareness for financial literacy in an organization. Long-term financial planning creates commitment and motivation to provide a guide for decision-making.
Long-term assets are an important component of effective financial business management for many industries. Companies that use and maintain these assets can improve their financial health and help ensure they earn consistent profits.
One common advantage of a long-term investment is higher return. Long-term investments typically generate higher returns compared to short-term investments because they have more time to grow.
Long-term financing is typically used to cover equipment purchases, vehicles, facilities, and other assets with a relatively long useful life. Monthly payments are relatively lower because the repayment period is spread over a longer period.
Career Advancement: Investing time and energy in a specific skill or field can lead to greater job opportunities and advancement in one's career. Financial Rewards: Investing time and energy in a business or investment can lead to financial gains and long-term financial security.
One of the main benefits of a long-term investment approach is money. Keeping your stocks in your portfolio longer is more cost-effective than regular buying and selling because the longer you hold your investments, the fewer fees you have to pay.
While financial markets need actors with different investment horizons in order to function well, long-term investors have the potential to act counter-cyclically and to play a key role in crisis recovery strategies.
One common advantage of a long-term investment is higher return. Long-term investments typically generate higher returns compared to short-term investments because they have more time to grow.
' The key benefits of long-term vs. short term financing are as follows: Coincides with Long-Term Strategy – Long-term financing enables a company to align its capital structure with its long-term strategic goals, affording the business more time to realize a return on an investment.
Creating Focus and Purpose Through a Long-Term Strategy
It enables sustained growth and profitability by defining the type of growth that aligns with a business owner's long-term objectives, whether it be profitability, market share capture, or targeted expansion.
Introduction: My name is Francesca Jacobs Ret, I am a innocent, super, beautiful, charming, lucky, gentle, clever person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.