- Benefit from the power of compounding When you remain invested for long, you can potentially gain from the power of compounding. Albert Einstein famously remarked compounding as the eighth wonder of the world. It has a multiplier effect of your wealth and helps you enhance your riches.
- Brings down the risk quotient Risk and investment go hand-in-hand. Any investment, irrespective of how big or small it is, carries an element of risk. The risk quotient is high when you invest in asset classes such as equities. However, when you remain invested for long, the risk gets averaged out over a period of time.
- Lesser transactional cost In long-term investments, the transactional costs are invariably lower. Note that short-term investments involve several monetary transactions, brokerage and compliance costs. Sometimes, these transactional costs are so high that they can substantially neutralise the actual investment gains. Therefore, long-term investments tend to be more profitable due to lower transactional expenses.
- Peace of mind As a long-term investor, you do not need to worry about market fluctuations. Note that these fluctuations often make one jittery, resulting in making bad calls and wrong investment choices. However, when you are committed for the long-term, these fluctuations don’t bother you, thus giving the much-needed peace of mind.
- Ample time to recover and learn from mistakes Even if short-term volatility affects your gains negatively, you have the time to recoup the losses, when you are committed for the long-term. At the same time, it allows you to learn from your mistakes and be more prudent with your choices. A long-term commitment gives you the time to rectify your errors and make an informed decision.
Warren Buffett, the Oracle of Omaha, had famously said that “Our favourite holding period is forever”. One of the prime reasons behind’s Buffet’s success as an investor has been his long-term strategy with investments.
On similar lines, if you wish to make the most out of your investment, it’s prudent to have a long-term approach. Also, if you are investing in an asset class like equities, a long-term investment horizon helps you reap dividends. By remaining committed for the long-term, you can easily meet essential financial goals like retirement with ease.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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