Long-term investments: the dos and don’ts when the market gets tough

Long-term investments can help you prepare for the future and tips to grow your money

Pile of coins on banknotes                                 
Investment strategies involve patience, and an acknowledgement that there are price fluctuations - Photo: Shutterstock

Long-term investments are a great way of planning for the future. You might want to create a comfortable nest egg for retirement, or save to send your children to university. Here, we’re going to take a look at the best long-term investments, and share top tips for success. 

Despite the carnage that we’ve seen on the stock market in recent years, equities are still considered to be smart long-term investments. Acquiring a diversified range of stocks, either individually or through an exchange-traded fund, can deliver far healthier returns than what savings accounts have to offer. Given how the interest rates offered by high street banks are at record lows, you’re going to want your money to work for you. 

Your long-term investment strategy must involve patience, and an acknowledgement that there may be some choppy waters along the way. Attempting to hop in and out during times of turbulence is often the worst thing you could do.

When it comes to long-term investments, the classic saying is to focus on time in the market rather than timing the market. And as we’re about to find out, entering into this commitment without the right mindset can be extremely costly.

Long-term investments: Crunching the numbers

According to research from Fidelity, downturns are perfectly normal. Indeed, since the 1920s, we’ve typically seen one every six years or so. Despite the uncertainty and fear that bear markets bring – sparked by everything from the dot-com bubble bursting to the pandemic – stocks have consistently risen over the long term.

The investment provider looked at what would have happened if someone invested $10,000 in the S&P 500 in January 1980, only cashing-in their long-term investment in December 2018. If the funds were left completely untouched, this lump sum would have ballooned to $659,615 over that 39-year period. Not bad at all. Once-in-a-lifetime holiday, anyone? 

This represents 14,245 days of your life or about 9,867 trading sessions on the likes of the New York Stock Exchange. But let’s just look at how these long-term investments are affected when just a small handful of the best trading sessions are missed. Missing the five best days means this pot would be worth just $426,993.Missing 10 would see the savings tumble to $318,036. Missing 30 days sends it down to $125,080, and the investment would be worth just $57,382 if they missed the 50 best days.

Just think about that for a moment: missing just 50 of 9,987 trading sessions had the potential for this would-be investor to lose $602,000. If this isn’t proof of why long-term investments are best left alone, I don’t know what is!

The best long-term investment strategies involve snapping up stocks when they are at bargain basement prices. That way, you have an opportunity to benefit from explosive growth when the market roars back to life. According to Fidelity, triple-digit growth has been consistently seen in the five years after major recessions. Five years after the Great Depression of May 1932, the market was up 367%. And fast forward to March 2014, five years on from the global financial crisis: equities had soared by 178%. It may be intimidating to look at charts that show the hammering that the S&P 500 and the FTSE have taken over the past few months, but remember: long-term investments need a long-term view.

USA 500
Daily change
Low: 4678.5
High: 4706

A final note: always make sure that you’re constantly evaluating your long-term investments and how they are diversified as time goes by. If you’re close to retirement or to achieving your financial goal, you may want to switch to safe long-term investments such as bonds or cash, eliminating the risk that your savings will evaporate just before you exit your position. A classic rule of thumb that we’ve mentioned before is to use this calculation when figuring out what percentage of your portfolio should be in stocks: deduct your age from the number 100. Here’s an example: Kelly is 62, meaning 38% of her assets should be in stocks.

Long-term investment vs trading

Some use the phrases “investing” and “trading” interchangeably, but these two disciplines are radically different. Traders are looking for short-term trades, meaning they’re looking for profitable moments by entering into a position for mere seconds or minutes. Long-term investments are completely different and they often come with perks that day traders miss. They include dividends from profitable companies, interest from bonds and, in some cases, stock splits. Long-term investments are also a lot less time intensive: it’s worth scrutinising earnings reports to make sure a company is being managed well, but these investors have far less of a need to monitor the ups and downs of the market on a daily basis.

Low-risk long-term investments

Dependent upon your appetite for risk, you might be looking for safe long-term investments. Blue-chip stocks – companies that regularly post solid earnings and healthy dividends – can be good, long-term investment options here. It’s always worth seeking professional advice before you enter into substantial positions, setting some clear financial goals in advance and asking yourself this question: if your capital was to plunge by 10% tomorrow, could you stomach it? In order to reap rewards, there has to be an element of risk.

Other long-term investment examples can include property, commodities such as gold, and cash. Even if you have a particularly adventurous attitude to risk, it’s always worth installing some safeguards that’ll prevent your capital from being wiped out in the event of a market crash. Just like holding 100% of your savings in Bitcoin would widely be regarded as reckless, focusing solely on stocks or bonds isn’t the right approach either. A diversified approach means that you’ll have more modest returns on an annual basis, but a better chance of seeing consistent gains. An unbalanced portfolio could deliver blockbuster returns of 35% one year, but an eye-watering loss of 25% the next.

Bitcoin to US Dollar
Daily change
Low: 49053.4
High: 51109.2

Whatever you decide, it’s crucial to do your own homework and to devise a strategy before you put your money where your mouth is. When done correctly, long-term investing is a fantastic way of creating financial certainty for your future, unlocking some well-deserved options when you’re preparing for retirement – and the means to have a little fun, too.

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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