We all work hard for our money; long hours, a lot of sacrifices, and maybe even missing out on other things in favour of work. Once we have hold of our hard-earned cash, the goal is to keep it and grow it, and that is the point at which many people decide to invest. It can be confusing with the multitude of options out there – stocks, shares, bonds, ISAs, savings accounts, property portfolios. But one approach which can definitely help you make the most of your income is long-term investing. A long-term investment, such as a housing investment, is one which pays off over a period of several years, ranging from one to ten or more. It may seem overwhelming and intimidating at first; the concept of stashing the cash somewhere you can’t access it in case of an emergency might be an uncomfortable one. But there are a number of huge benefits to investing long term, if you just take a moment to consider the bigger picture.
It may give you the highest rate of return
When investing long term, you give yourself more options. Firstly, determine the rate of return. Then do your research to find a fund which can average that return over 5-10 years. This allows you to ride out dips in the market, and drops in stock: the market is cyclical, and we have seen throughout history that it always recovers from a drop. Holding an investment over a longer period allows you to weather these storms more successfully, resulting in a larger return. The key here is holding your nerve: pull your investment out too early, and you could lose a significant amount. Whilst it may seem tempting to grab your investment and run when the waves turn choppy in the market, in doing so you will only disadvantage yourself, and potentially miss out on a decent profit. Ride it out, nerve-wracking as it may be, and you will likely end up in a better financial position. The longer you plan on investing for, the more risks you can take with your initial investment – there will be a greater period for the market to regulate itself following any drops.
Play with more than cash
Historically speaking, equity and bond investments – more traditionally long-term investments – have outperformed cash over a long-term period. According to research by Morningstar, Inc., and M&G, the average annual return on UK investments between the period 1989-2014, when adjusted accordingly for inflation, is 5.2% equities, 4.6% bonds, and -0.8% cash. As you can see, though they may be the riskier choices, when held for longer periods of time these types of investments offer a more prominent return, giving you more money at the end. The volatility of their nature actually makes them perfect for a longer-term investment, whilst cash is best saved for short-term goals.
It can be practical
Not all long-term investments require you to lock your cash away in a traditional sense: property is an ideal long-term investment, and gives you the added advantage of a physical, tangible object in return for your money; this can sometimes feel more reassuring. By selecting a property and area wisely, you can generate a very good return on your investment down the line when you choose to sell, and even accumulate profit during the investment period by renting out the property. Long-term housing investment can offer a solid, reliable investment and the added bonus of a roof over you or a family member’s head whilst your capital increases.
Founder Dinis Guarda
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