A long-term investment strategy in the stock market is an important part of your Stocks wealth journey. It involves holding assets such as bonds, stocks, ETFs, and mutual funds for more than 12 months. This approach requires discipline and patience, as well as a willingness to take on some risk for higher long-term returns.
Investing in stocks and holding them is one of the best ways to grow wealth over the long term. Between 1974 and 2024, the S&P 500 had annual losses in only 13 years. This shows that the stock market produces positive returns far more often than not. This steady long-term performance is one of the main reasons why stocks can help grow your wealth over time.
Still, holding onto investments isn’t always easy. The market fluctuates, sometimes wildly, and it’s tempting to sell when things look shaky.
Long-term investing isn’t about getting rich overnight. It’s about small, steady investments that can add up in ways that surprise you. Put in small amounts regularly, reinvesting dividends, and not panicking every time the market dips.
And the best part is watching it happen over time. Stick with it, and it becomes part of your routine.
This article explores the main benefits of long-term stock investing. It also explains how to stay committed even when the market becomes unpredictable.
Stocks wealth journey: grow your investments despite stock market fluctuations
The U.S. stock market can fluctuate a lot, and it often causes long-term investors to question their strategies. Even so, history shows that the market has consistently recovered after downturns. In the last 35 years, the market has posted positive annual returns in approximately eight out of ten years.
Long-term investors have the opportunity to ride out the ups and downs over many years or even decades, leading to better returns in the long run.
Looking back at stock market returns since the 1920s, it is uncommon for investors to have lost money by holding an S&P 500 investment for a 20-year period. Even after major crashes like the Great Depression, Black Monday, the dot-com burst, and the financial crisis, long-term investors in the S&P 500 have generally seen gains. On average, the index has almost tripled in value every 10 years.
Benefit from all stock market moves
Trying to time the market is extremely tough. Many of the biggest gains and losses happen in just a few days each year, and there’s no reliable way to know when those days will be. Staying invested for the long-term is usually a better approach – you’re more likely to catch the strong days instead of missing them by jumping in and out.
Capitalising on compound growth
Another big advantage of long-term investing is compound growth. While past performance doesn’t promise future returns, the S&P 500 has returned about 7% per year after adjusting for inflation. This means it ends most years a bit higher than where it started.
Over time, your gains start to build on each other. When you invest in the stock market and keep reinvesting the gains, your money can grow faster. Say you invest $1,000 and earn 10% in a year, now you’ve got $1,100. If you leave that whole amount invested, the next year’s returns are based on the higher balance, so you earn even more. The longer you leave your money invested, the more it can grow, turning small investments into larger amounts.
Lower transaction costs
Buying and selling stocks too often can eat into your profits because every trade comes with some kind of fee or cost. With long-term investing, you’re not buying and selling as much, so more of your money stays in your account instead of going towards extra fees. This matters even more if you’re starting with a smaller amount, since lower costs let more of your money stay invested and work for you.
Stocks wealth journey: You won’t miss out on dividends
Many investors wait for the « right » time to start investing in the stock market. But in doing so, they miss out on an important opportunity to earn dividends.
Don’t overlook the importance of dividends. Even though individual payments may seem small, especially if you’re investing for just a few years, dividends make up more than 40% of the S&P 500’s gains. As a stock market investor, you have a choice: take your dividends as cash or reinvest them back into the market. You can do this manually or automatically. Reinvesting opens up more opportunities for your capital to grow.
Stocks wealth journey by building a diversified portfolio
Diversification is a key way to manage risk, and it’s easier to do when you’re investing for the long-term. By diversifying your investments across different types of assets, industries, and regions, it helps to mitigate the impact of a single underperforming asset on your overall portfolio.
Diversifying also helps you take advantage of growth in different parts of the market. Tech companies often grow quickly, while healthcare or energy tend to provide more steady returns. A well-diversified portfolio can protect your money from market volatility and lower the risk of loss overall.
Long-term investing also lets you invest in less volatile, more stable assets like blue-chip stocks, dividend-paying companies, or index funds. These assets grow steadily and help lower the overall risk of your portfolio.
Riding out highs and lows of stocks
Stocks are considered long-term investments. This is, in part, because it’s not uncommon for stocks to fall 10% to 20% or more in value over a shorter period of time. Investors have the chance to capitalise on some of these highs and lows over a period of many years to generate a better long-term return.
While past results do not guarantee future returns, it does suggest that long-term investing in stocks generally yields positive returns if given enough time.
Lower capital gains tax rate
Profits that result from selling capital assets end up in capital gains. This includes a wide range of personal assets like furniture, or investments like stocks, bonds, and real estate.
When an investor sells a financial security within a year of buying it, any gains are taxed at the same rate as regular income. These are known as short-term capital gains.
Any securities that are sold after being held for over a year result in long-term capital gains. These gains are taxed at a maximum rate of just 20%. Investors in lower tax brackets may even qualify for a 0% long-term capital gains tax rate.
Conclusion
Stock investors can use many different trading strategies. Investors who have more experience and more capital available may be able to ride market fluctuations and make profits using short-term trading strategies. However, this approach may not work for beginners or those who have a low risk tolerance. Holding stocks for the long term can help you ride the highs and lows of the market, and it tends to be less costly.
DISCLAIMER: This content is for general informational and educational purposes only and should not be considered investment advice or investment recommendation.
