Keeping money in a savings account feels safe, but due to inflation, your wealth actually loses a bit of value every year. Do you want to put your money to work? Then long-term investing can be a good idea. Forget the idea that you have to constantly keep your nose glued to stock prices or try to predict the market. It is not about getting rich quick with impulsive decisions, but about building wealth with a long-term perspective. In this module, you will learn more about long-term investing.
Long-term investing is an investment strategy with the goal of growing your capital over a long period. You invest in investment products, such as individual stocks or ETFs, in various sectors and countries with the intention of holding them for a long time. You do not focus on quick short-term gains, but on an upward trend with a long horizon.
Think of long-term investing as planting an oak tree: you put a seed in the ground today, not to sit in the shade tomorrow, but to have a sturdy tree in ten or twenty years.
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How does investing for the long term work?
In the short term, the stock market can be an emotional rollercoaster, full of volatility and uncertainty. By maintaining a long investment horizon, you give your portfolio time to recover from any potential dips.
A powerful way to make this work is by investing periodically. Instead of waiting for the ‘perfect’ moment, you deposit a fixed amount monthly. This allows you to buy more units of ETFs or stocks when prices are low and fewer when they are high, all for the same monthly amount you invest.
How long is long-term investing?
When we talk about the ‘long term’, we usually mean a period of at least 5 to 10 years, but more often several decades: 20 or 30 years. Why this long time horizon? Because investment products can fluctuate in the short term. If you need your investment in three months for a new car, you run the risk of being forced to sell at an unfavourable moment when prices are low. Generally, the longer the horizon, the greater the chance of a positive average return.
What are the advantages of long-term investing?
The benefits of a long-term strategy go beyond just the bottom line. Let’s list the most important reasons for you.
- 1. Less risk: Time is your strongest weapon against risks. The longer you hold your investments, the smaller the impact temporary dips can have on your final result. You are more likely to achieve a positive return if you stay invested long enough. Note: investing involves risks, and that includes long-term investing.
- 2. Potential for a good return: Investing offers the possibility of a higher return than a standard savings account. This is especially true when savings interest is lower than inflation. Although future performance is never guaranteed, your investments grow along with the value of companies and sectors that make a profit.
- 3. Compound interest effect: With long-term investing, your investment can grow through profit (or dividend) on your original investment. Because you also earn a return on the profit you make, the compound interest effect (return-on-return) is created. This snowball effect can lead to exponential growth over the long term.
- 4. Chance of achieving your investment goal: Whether you dream of a house or want to retire early, long-term investing is the fuel that gets you there. By making a plan and remaining patient, you work purposefully towards your goals.
- 5. Less dependent on timing: Beginner investors often find it difficult to determine the right entry point. But timing the market is difficult; nobody has a crystal ball to see what the future holds. Because you are investing for the long term, you are less dependent on the initial entry point and have a better chance of a good average return.
- 6. Peace of mind: The stock market fluctuates every day. This can give the impression that you have lost your investment, leading to panic. A solid long-term vision ensures you don’t panic during bad news and can absorb fluctuations. Furthermore, you don’t need to check the market every day, which provides peace of mind.
What are the disadvantages of long-term investing?
Investing is not without risks. The main disadvantage is that your investment can become worth less; you can lose (part of) your money. If you need your money for something important in the short term, there is a chance your investment has decreased in value. You therefore always need a buffer in your savings account for unforeseen costs, so you are never forced to sell at a loss.
Long-term investing also requires discipline. It can be difficult not to give in to emotions when you see the stock markets falling, but that is precisely the moment you must stick to your plan.
What is the best investment for the long term?
There is no such thing as the ‘best’ investment for the long term. It is wise to choose an investment product that fits your strategy and personal circumstances, whether that is a stock, ETF, bond, or another financial instrument.
A good investment is one that provides diversification. Instead of putting all your money into one company, it is better to choose a mix of different products across various sectors and countries. This way, you benefit from broad economic trends without being dependent on the success of one specific stock.
Is investing for the long term a good idea?
Investing for the long term can be a sensible way to build wealth. As long as you have a long-term perspective, diversify your portfolio, and do not invest money you need next month, it can historically be an effective way to shape your financial future. It is not a way to get rich quick, but a way to get rich smart. And again, investing involves risks; there is a chance you could lose your investment or part of it.
How can you invest for the long term?
If you want to invest for the long term, it is wise to start with a good foundation. These are the steps:
- Be patient and stick to your strategy: Market fluctuations are part of investing. Resist the temptation to constantly adjust your portfolio; stay true to your plan and give your investments time to grow.
- Start with a good foundation: As a beginner, your knowledge may be limited. Ensure you first understand how investing works and research different products and strategies. Our knowledge centre can help you.
- Determine your investment goals: After gaining knowledge, work on your goals. Are you investing for a pension, a dream home, or financial freedom? Your goals keep you focused on the long term.
- Create an investment plan: Set up your investment plan and open an account with a broker. Determine how much you want to invest and how to spread your risks. Use tools like the BUX Investment Plan to make monthly investing an effortless habit.
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Investing involves risks. You can lose your investment.
All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
