Investing jargon made simple: Long term investing
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
If you’ve been reading our website or watching our YouTube videos, you’ll have noticed that when we talk about investing, we talk about long-term investing. What do we mean by long term? And what are the potential benefits of a long-term mindset?
Long-term investing tends to mean investing over a period of five years or more. The reason long-term investing could be that it gives you time to ride out fluctuations in the markets. Think about how economic performance works in a line chart such as the FTSE 100 below.
Five-year performance as of 28 September 2018. Source: Bloomberg.
This line goes up and down. By investing for the long term, you give yourself the opportunity to ride out fluctuations in the market. Remember, losses are only realised when you withdraw your money. Ups and downs are a normal part of investing, and in the long term your money could have time to grow beyond any short-term dips.
If the market does dip, it is important as an investor to remain calm and patient. Think about your long-term goals and the time you have to get there. Short term political or economic events may look different a decade from now. Another way to think about short-term dips is that they allow you to buy more of your investment in that time period. For example, if you regularly invest £500 each month, you’ll get more for your money in a market dip than what you’d get in a market high. Buying during a dip could give your money more opportunity for growth than buying during a high.
Long term investing gives you time to benefit from compound interest, which is cumulative interest on both your investment and the growth earned on your investment. Over a long-term period, this could build up to be a considerable nest egg.
If you are thinking about retirement this is typically a long period away for most people, long-term investing could give you the time to build a pot big enough to fund your lifestyle in the years when you aren’t working. Putting money away, little and often over the long-term, has time to potentially build into something much greater.
Diversifying your investment goes hand in hand with a long-term strategy, ensuring your eggs aren’t all in one basket. This spreads your risk around, and with a long-term strategy, it means you can have more confidence about potential growth in your investment.
You can see how long term investing in our globally diversified Fully-Managed Investment Portfolios could work for you, visit tpinvestor.com or download the True Potential Investor app to see what your investment could be worth over time.
