What Is Long-Term Investing?
Long-term investing is whenever you choose to hold on to an investment for more than a year’s time. However, it is important to note that different people can have very different reasons for investing this way. For example, one person might hold on to the stock of a mature company so that they can collect dividends in period after period. Alternatively, another person might hold on to the stock of an up-and-coming company because they believe in its upward potential. Regardless, long-term investing can be very well-suited for a lot of investors, meaning that it should be an important subject if you are seeking to learn how to invest.
What Are the Advantages of Long-Term Investing?
Here are some of the advantages of long-term investing:
- For starters, long-term investing comes with fewer costs. After all, you are going to make your investments before holding on to them. As a result, you can expect a much smaller number of transactions when compared with an investor who will be buying and selling investments on a regular basis. The costs of a single transaction might not be too bad. Unfortunately, they can add up with remarkable speed.
- Moving on, long-term investors have a reduced need to buy and sell investments with the perfect timing. This is important because most people are terrible at timing the market. Sometimes, that is because they have emotions, meaning that they can over-react when they are feeling worked-up. Other times, that is is because they need to make fast decisions based on limited information, which increases the chance of error. If you choose to be a long-term investor, you can ride out both the highs and the lows that can happen in the short run. Moreover, you can think about your choices.
- Long-term investors can invest in a wide range of investments. However, a lot of interested individuals choose to capitalize on the general upward trend of the stock market. Yes, it takes serious tumbles from time to time. Even so, the stock market has been consistently rising in value over the long run. Perhaps this will change at some point in the future. For now, there is no evidence of that happening.
What Are the Disadvantages of Long-Term Investing?
Meanwhile, here are some of the disadvantages of long-term investing:
- Generally speaking, long-term investments are more illiquid than their short-term counterparts. This is a huge issue if you want to be able to convert your investments into cash as fast as possible without sacrificing a huge chunk of their value in the process. In contrast, this is a non-issue if you aren’t concerned about having that ability at your disposal.
- Investing in stocks for the long run means increased exposure to business risk. After all, you are holding on to the stocks. As a result, you can expect to take a hit if something bad happens to the relevant companies. Of course, it is possible to stick to the stocks of mature companies that are very low-risk, though that won’t be appealing for everyone out there.
Investing is a serious matter. As a result, whether you are thinking about long-term investing or some other kind of investing, you should do your best to learn about it. The better-informed you become, the better your chances of making the right decisions for yourself.