You might think it seems staid and boring, but the fact is that playing the market and working within the financial system to find success can be exhilarating. However, The problem is that there is always risk involved. You can feel the high of a great trade, and then almost immediately feel down because of a weak one. This leaves many investors anxious and uncertain about their investment strategies.
While that great trade might feel good, it’s probably not the best idea to focus on short-term satisfaction. Planning for the long-haul is usually the best approach when you start dipping your toes into the markets. You might not get that one big trade, but you will build up a steady profit over time.
Long-term investing is a defense against short-term market fluctuations. While you can try a strategy of making trades with only the short-term in mind, you will be at significant risk. Here’s a quick guide to what those risks are, and why a long-term approach to your investments is usually the best way to go.
Perhaps the best way to appreciate the benefits of long term investing is to examine historical trends and understand market volatility. For as long as people have sold things, there have been fluctuations in the markets. Prices have gone up and down based on things like the weather, economic factors, and how investors feel about something. If you are able to zoom out and see the big picture, which includes historical trends, then you may be able to spot when a stock is undergoing something temporary, or there’s a more serious thing going on. If you react to the temporary shift, then you might get some short-term gains, but suffer in the long run. You need to be smart, informed, and patient.
When you’re talking about short vs long term investments, then you need to consider marketing timing. This is trying to time the market or entering into multiple short-term trades in a short period of time. This is very risky, as it requires you to predict the future direction of markets, which fluctuate for a variety of reasons that are sometimes not predictable. Very experienced professionals have trouble with this, so there’s no reason to think that you will be able to do it.
This causes people to end up chasing trends, While it can be very lucrative if you do it right, the chances of doing so are very slim. You have to not only predict the movements of the market accurately, but you also have to time your trades perfectly, and monitor the market constantly. Having a long-term view will help you weather temporary movements and avoid mistakes.
The fact is that short-term volatility often ends up being smoothed out over a longer term. If you stay committed to a long-term investment strategy, then you'll be able to withstand short-term downturns if you recognize that markets recover and grow over time.
This is much less stressful than trying to constantly chase the market. Long-term investing gives you the perspective to see the big picture. Short-term investing is often driven by fear and panic, and you will be susceptible to more mistakes. Not to mention the health effects that stress can have on a person.
One of the more significant advantages of long-term investing is that you will be able to capture market returns over the long haul. When you remain invested through market cycles and fluctuations, you will benefit from the market’s tendency to grow over time.
You might think that you invest for the thrill of the game, or to have the feeling of winning. However, really the reason we invest is to make a profit, and to keep making profits as you make more trades. A long-term strategy will do this. By resisting the temptation to engage in short-term trading, you will build a strong portfolio that will withstand any bumps that you might go through. You will tolerate risk better, and meet your investing goals.
You will also gain the benefit of compounding returns. This means that you can reinvest the returns from your investment into other investments, and make further returns. Over time, this will snowball and accelerate your wealth. The key to getting these snowballing returns is to invest early and allow your investments to grow.
Let’s face it: we live in a world where many of us want immediate gratification. That means when someone makes an investment, they expect it to bring in a profit right away. However, if you can reject that kind of thinking, and examine long-term market trends, you will be much better off. Short-term investments can pay off, but in the long run the house always wins. You are much better to take the long view and try building your wealth with a strong portfolio with a solid foundation.