Time plays a vital role in choosing the investment strategy. Fluctuating markets reflect promising returns and many of us get attracted by short-term numbers showing high gains. Markets act differently, if we compare results for 10 years performance, or a year’s performance with that of some months.
In short term, markets are generally volatile, while in long run, investments exhibit a stable behaviour enabling investors to design a strategy. That’s the power of long term.
Investment objective might differ from person to person, but every one intends to get good returns. As rightly put by the business magnet Warren Buffet, “Invest for the Long Term”, such investments ensure far more benefits when compared to investments with short-term horizon. Before investing hard-earned funds, one needs to understand the working of markets and the risks associated with investing, which is not easily possible with short-term investments.
Benefits of investing with long term horizon:
1. Short-term investments are generally lump-sum and triggered by quick upward rush in the market for prospective gains, which have equal risk of downside too. Unlike short-term investments, long term investments offer benefit of averaging as total resources can be invested at different points of time (for example, SIPs).
2. Short term is generally unclear. However, in long term one can take the historical performance base. Of course, we cannot take history for granted, so diversification is a solution. Careful distribution of funds between MFs, stocks and secured investments like FDs and bonds can help.
3. Retirement planning, accumulation of wealth, guaranteed returns and steady returns – all these benefits are easily achievable with planned long term investments. However, short term investments do not offer tax benefits and involve higher risk.
4. If resources are invested for long-term, once can take higher risk. If one needs funds for use back in a shorter duration, investment approach adopted is generally conservative.
The longer you stay invested, lower is the risk of losing funds. Long-term investments ensure consistency as against speculative gains. Successful investors base their actions on deep research rather than random market ups and downs.