It is a strategy in which the investment is held for more than a year. It is the strategy for stocks, bonds, exchange-traded funds, mutual funds, and other many investing instruments. The most important thing needed in an individual is patience to carry an investment for the long term.
Investing in stocks and mutual funds and carrying the investment for a long period is the most profitable job an investor can do.
Long-term investment is always above the market.
Long term Returns
The best long-term assets include stocks and bonds. The asset which is good for you depends on your circumstances. If you are young and your age is not much then you can bear the risk. You can invest in the stocks majority of your money. But if you are an aged person and you are investing for your retirement, you can invest in less risky assets like government bonds.
As we see historical data stocks have generated the most of the returns. They have outperformed other asset classes by a good margin. The annual return of the S&P 500 is nearly 12% per year from 1928. The Treasury bills have given only 5.33% annual returns of 10-year treasury notes.
These markets which are new and emerging have the highest potential of returns. But the risk in the emerging markets is also more because the companies are also new in the emerging markets. The small and large-cap funds have also given good returns in this time.
Stocks are considered as long-term investments. Because they can easily fluctuate between values in a short time. 10-15% of the change in the stock value takes place easily in a short time. For a good return in the long term, the investor has to ride those highs and lows many times. From the study of the S&P 500 from 1920 investors have rarely lost any kind of money for investing for 20 years of period.
Investing for the long term is the path of patience. Investors do not want to time the market. They are very poor at timing the market. If you want to be invested for a long period then you need to have a habit of looking at the minor rise and fall in the market.
Investors lose confidence at the time when the market falls. It will make investors panic and sell the holdings without thinking anything. This time will break the confidence of many investors and make them sell their holdings. And again when the market rebounds they want to come back, But most of them will not be able to do that, and they lose most of the money during that time.
One of the most beneficial things an investor can get after investing for the long term is a low capital gain tax. If an investor sells their position within a year then he has to pay a huge fee as a capital gain tax. But if an investor sees the position after holding for more than a year then he has to pay low capital gain tax.
Another benefit of holding a stock for the long term is that you need to pay low brokerage fees as you are not regularly buying and selling the stocks.
Lastly, you should invest for the long term only in the companies in which you have confidence that they will do better in the coming future with your research and investigation about the company.