One of the questions
frequently asked when investing is time horizon – also known as the length of
time one is willing to park his fund. While there are a gamut of instruments
that can accommodate quick investing, seasoned fund managers and practitioners
would always recommend long-term over short.
Based on research, here are the top 4 reasons why:
1.You take emotions out of the investing equation. Investing long-term takes
away worry from an investor especially when the market drops. He becomes more
forgiving and believes that vitality is short-term. Long-term investing gives
peace of mind. An investor can sleep well at night no matter how unstable the
market has been on, any particular day because he knows that he is investing
for his future 10 years later.
2.You let the power of compounding do its job. Compounding power of money
works well because of one key ingredient – time. The longer you stay in the
market, the more the compounding effect shows off. One of the reasons why
Filipinos refrain to invest is because of the notion that it takes too much
time for the investment to grow. We are fond of immediate results, hence,
instant gratification. That’s why many people are still hesitant to invest. On
the other hand, there are people that are still fans of “get-rich-quick” money
schemes without knowing the underlying instruments for systems. They certainly
make the perfect targets for scams. Either they incur significant losses, or
pocket small, short-term profit (then miss the opportunity to let their money
grow much more.) They’re killing the magic even before it starts.
It is the time in the
market, not timing the market, which spells success in investing.
3.You can fix your investment mistakes. As the adage goes, ‘time
is a great healer.’ This is true with investments. Going long-term gives you
the advantage of recovering losses in the past. A bad year can be balanced off
by successive good years. History has proven that after significant losses, the
market picks up momentum and climbs again to sustainable levels (true to the
concept of the 5 year cycle.) The Philippine Stock Exchange index (PSE)
performance for the last 30 years shows that albeit the local market
experienced upward and downward trends through the years, the overall result is
still positive. Although short-term corrections seem random, the market tends
to reflect the overall growth and productivity of the economy in the long run.
4.You avoid making costly decisions. An investor who is
directly invested in the market may gain at times and tries to beat the market
again and again. He may succeed and achieve small wins, without knowing that an
average investor trying to beat the market may inflict more losses than profit.
Worse if he is invested in actively managed fund such as mutual funds, in a way
the compounding effects wear off, the investment is booked at wrong times, and
the fees accumulate or are repaid every time he transacts. Thus, making him,
“managed the fund manager.”
“Patience is a virtue, and
persistence is the key to success.” These two values hold the core principle of
long-term investing. If you are saving up for your financial dreams in the next
ten to fifteen years, there is really no need for you to put your money in
short-term investments, unless you want to gain short-term earnings for
long-term investments. Let the compounding effect kick in and do wonders on
your investments’ performance. You have worked hard enough; now allow your
money to work for you.
-Rampver Financials
God Bless Us..
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