Long-term investing, according to its name, is investing for a longer period of time, such as property. We can also invest for the long term in the form of smaller regular deposits in stocks, bonds, index funds, etc.
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Why invest for the long term?
There are several reasons why it is important to invest for the long term:
1. Profitability: long-term investments usually offer higher returns than short-term investments. These returns can be achieved through share price growth or dividend income.
2. Diversification: Long-term investments allow you to spread risk across different assets, which can reduce the overall financial impact of short-term market fluctuations.
3. Inflation: long-term investments can help protect the value of money in the face of inflation.
4. Life events: Long-term investments can help prepare for important life events such as retirement, buying a property or children's education.
5. Portfolio construction: long-term investments allow you to build and grow your portfolio to achieve your financial goals.
In general, long-term investing requires patience, a long-term view, and the ability to ignore short-term market fluctuations.
When investing for the long term, compound interest can be very effective because the interest from previous periods is added to the original deposit and the total value of the investment grows faster.
If you deposit $1,000 in an account with an interest rate of 10% per year, your investment will be worth $1,100 after the first year ($1,000 + 10% of $1,000). If you do not withdraw anything but keep the deposit in the account, your investment will continue to earn interest and within five years it will reach the value of