Long-term investments require careful planning and loads of patience, but they can be incredibly rewarding and profitable if you start your portfolio correctly. Even though current trading trends are leaning toward a short-term stock exchange, the safest and the most consistent way to stay profitable on the stock market is via long-term investments. However, like everything else, these advantages come with specific drawbacks you should be aware of.
In this article, we’ll discuss the different pros and cons of investing in long-term stocks to help you decide whether it’s worth it for you or not.
So, without any further ado, let’s get right into it!
1. Pro: It’s less risky
Historical data shows that stock values tend to stay more consistent over more extended time periods. Let’s say a company you have your share in has a rough quarter, and their stocks lose value for some time. However, the company manages to recover afterward and is even stronger than before. For a short-term investor, this would’ve been a devastating blow, whilst someone who’s looking into long-term payoffs wouldn’t be affected much, if at all.
Besides that, you’ll reduce your risk by avoiding missed opportunities. As an intraday trader, you would need a lot of luck not to miss out on big up days on the market. Unfortunately, missing just a few of these move-ups could cut your potential profits in a significant way. With long-term stock investments, this is simply not the case: your assets won’t be affected by short-term fluctuations at all.
2. Con: It requires patience and time
Time is one of our most valuable resources, so we have to be careful how we spend it. That’s why long-term investing isn’t for everyone: if you’re already close to retirement, you probably won’t be satisfied with the results of these types of stock investments. It makes much more sense for people who’re young and looking to secure their distant futures.
Besides that, if you’re not ready to wait years or even decades to get actual value out of it, you’re better off investing in short-term stocks. Patience is vital there, so if you’re in need of instant income, long-term investing is a no-go.
3. Pro: It takes the stress out of the equation
Being on the stock market exclusively for long-haul gains takes the anxiety out of the entire process. You won’t have to bite your nails every time there’s a slight change on the market, as your investment returns won’t be affected by daily market fluctuations that much.
Besides that, long-term investments don’t leave any space for impulsive decisions. You won’t be able to invest on a whim: everything needs to be planned carefully, years in advance. That alone makes your trading experience much more comfortable, as you’ll avoid unnecessary stress that comes with intra-day price fluctuations.
Overall, if you’re not ready to take huge risks and stress out over stock pricing levels every day, long-term investing is for you.
4. Con: It requires massive amounts of research to be done successfully.
Long-term investments can mean anything between 10 to 30 years of waiting “for the fruit to ripen,” so you have to make sure you choose a stable company from the get-go. Even if the company whose stocks you’re buying seems like a beacon of stability right now, can you be confident that it will stay so during the next five to ten years? Does it have enough potential to stay relevant in its respective market in the long run? How will the current market trends evolve throughout the years? Can the company withstand it or not?
All of these questions need to be carefully considered before you make a choice to invest in the company. You can click here to find some valuable data to help you identify stable and potentially profitable investments.
Of course, you’re not a fortune teller-some things are simply unpredictable. There’s no guarantee everything will go exactly as planned, but you know how it is: the bigger the risk, the greater the reward!
5. Pro: You’ll give your money the time it needs to grow
The longer your investment period is, the more you’ll be able to earn. Again, long-term investing is all about patience. But how does it all work? How exactly will your investment grow over the years?
Well, it all boils down to a simple concept: compound returns. Let’s say you’ve invested $20,000 as your initial investment. For the sake of simplicity, let’s also say you’re receiving an annual interest rate of 10%. After one year, you’ll have $22,000, earning yourself $2000, as expected. Now, the second year is where it gets interesting. Your returns will get reinvested after every year, and you’ll start receiving what’s essentially a return on your last year’s return, thus allowing your money to grow exponentially. So, after two years, you’ll have $24,200 ($2000 + 10% of 2000 you’ve earned the previous year).
6. Con: Choosing the “right” type of investment can be difficult
While having so many options to choose from isn’t necessarily a drawback, it can be pretty overwhelming for a newcomer. Long-term investments take many different “shapes and forms,” so finding what’s right for you takes some hard work.
7. Pro: You’ll have to deal with fewer trading fees
As a long-term investor, you won’t be jumping in and out of the market, meaning you’ll have fewer trading fees to worry about. Naturally, the more you have to pay in fees, the less you’ll be able to keep for yourself.
The bottom line
Investing in long-term stocks can be incredibly rewarding and profitable, but it’s still not for everyone. You’ll need to do a lot of homework, have loads of patience, and be ready to accept the risks involved. Still, if everything goes as planned, your investment can turn into a life-changing sum of money, which makes it completely worth the effort.
So, overall, do the advantages outweigh the disadvantages? It’s hard to say. The answer lies within your own financial goals, plans, and needs. Whatever you do, make sure to do your research once you’ve decided to try it out. Knowledge is your only way to success when it comes to stock investments: never forget that.