Long-term investment strategies involve holding investments for more than a year. Such a strategy can include holding a variety of assets, like mutual funds, stocks, bonds, exchange-traded funds (ETFs), and more. As Kavan Choksi Japan says, to take a long-term investment approach, one requires a high degree of discipline and patience. After all, investors should be in a position to take on a certain amount of risk while they wait for higher rewards down the road.
Kavan Choksi Japan marks a few benefits of holding stocks for the long term
The term asset class implies to a specific category of investments that share the same qualities and characteristics, like fixed-income assets (bonds) or equities, which are commonly called stocks. The asset class best suited for an investor would rely on several factors, including the amount of capital they have, their investment goals, risk profile and tolerance, age, and so on. If one goes through several decades of asset class returns, they would find that stocks have generally outperformed almost all other asset classes. Emerging markets especially have some of the best return potential in equity markets, however, they also carry the highest degree of risk. Historically, this class has earned high average annual returns but short-term fluctuations have impacted their performance.
Broadly speaking, stocks are considered to be ideal long-term investments especially as it is not uncommon for stocks to drop 10% to 20% or more in value over a shorter period of time. Investors do have the chance to ride out some of these highs and lows over a span of several years or even decades in order to generate a better long-term return. Individuals rarely lose money if they opt to invest in the S&P 500 for a 20-year time period. Even taking various setbacks into account, like Black Monday, the Great Depression, the tech bubble, and the financial crisis, investors typically have experienced gains had they made an investment in the S&P 500 and held it uninterrupted for 20 years. Even though past results cannot be considered to be a guarantee of future returns, it does suggest that long-term investing in stocks generally provides positive results, if given enough time.
One of the biggest flaws in investor behaviour is the tendency to get emotional. There are several investors who claim to invest for the long-term, investors until the stock market begins falling. They panic seeing the market fall, and end up withdrawing their money to avoid additional losses. These investors may fail to remain invested in stocks when a rebound occurs and often jump back in only when most of the gains have already been achieved. Such a type of buy high and sell low behaviour is prone to crippling investor returns. While paying attention to the stock market trends is a good idea, too much focus on it may invariably hamper one’s chances of success by trying to time the market too frequently. As Kavan Choksi Japan says, just having a simple long-term buy-and-hold strategy usually is able to yield far better results.
