What Is Long-Term Investing? - SmartAsset (2024)

People often think of buying stocks as a high-stress situation. And in many scenarios, that may be the case. When you get into short-term investing, you’re constantly buying and selling your stocks to get the best prices. But this isn’t the only way to go about investing. Long-term investing, while requiring attention and strategy, eliminates much of the high stress of short-term investing.

What Is Long-Term Investing?

Long-term investing is a way to provide more peace of mind and security in investing. Instead of constantly buying and selling short-term stocks, long-term investments often stay put. It eliminates much of the risk and stress of constantly following the market to maintain short-term investments.

But with a phrase like “long term,” it’s a little hard to pin down exactly what is meant by “long.” Does that mean one year or 10 years? While definitions can vary, long-term investing usually means investments you hold onto for more than a year.

When you get into long-term investing, you set up your investments to maximize your returns in the long run rather than immediately. These investments include your normal stocks and bonds, but also your other investments like real estate. Setting up your investments for the long-term means you look at your financial goals for the future. This comes in handy when you’re saving for retirement.

Advantages of Long-Term Investing

Again, one huge advantage of long-term investing is eliminating the stress of planning and keeping up with the market. Short-term investments can leave you constantly worried that your portfolio has tanked. But with long-term investments, you don’t have to maintain a risky, strategic investment style. Instead, you can leave them alone to grow. This also makes it easier for beginner investors.

Even as a beginner, long-term investments provide more room to make mistakes. Since there’s less volatility, you won’t take as big or as immediate of a hit if you’ve chosen a bad investment. Once you’ve chosen a well-performing stock, you can leave it for the long-term and earn more money.

One way you earn more money with long-term investing is by compounding your earnings. This isn’t automatic, but it’s made easier by letting your investments sit for a while. Once an investment has turned a profit, you can take that dividend and invest it even more. You don’t have to invest it into the same stock, but since it’s performing so well, it wouldn’t hurt to do so anyways!

Lastly, long-term investing not only earns you more money, but it can save you money, too. With long-term investing, you avoid the constant buying and selling of short-term investing. Since most investments come with commission fees, and other expenses, you also get to avoid that part of short-term investing. Sure, you will still see fees for your long-term investments, but beats paying separate fees for a handful of short-term investments each month.

Long-term investing also saves you money by taking out a smaller tax bite. When you invest mostly in short-term stocks and bonds, you usually end up paying at the highest tax rate. But with long-term investments, you get to see a lower tax rate on your capital gains.

How to Succeed in Long-Term Investing

So now that you know what long-term investing is and how you can benefit from it, are you ready to give it a try? It’s important that you set some goals and strategies before you start. That way you have a plan to follow. Investing at random can hurt your portfolio and won’t give you the maximum returns. Create a strategy and stick to it! If you need help, you can always seek out a financial advisor or work with a robo-advisor.

When creating your plan, you may want to remember a few things. For starters, maintain an emotional distance from your investments. Even though your investments are for the long-term, it can be easy to fixate on the day-to-day changes. It’s normal for stocks and values to change. So if you know that your shares are in a well-performing company, don’t freak out about a small dip one day. For all you know, the next day could see a huge spike.

That’s not to say, however, that you should ignore your investments. Do check in on them and be an involved investor. Sometimes, you pick a bad investment. You’ll want to know about it sooner, rather than later. That way, you can sell the bad investment and buy a new one, one that’s better for the long-term.

Buying stocks will always be a risky business. There’s simply no way to predict how a company will fare, especially in the long-term. However, you can follow some handy practices to cut out some bad investments. For example, just because a company is a big name, doesn’t mean their stocks will perform well in the long term. Do some research into a company’s earnings and past performance before you chase a popular lead.

Bottom Line

Long-term investing provides a number of benefits for investors, especially those who can’t handle the stress of day-to-day trading. Long-term investments let you invest for your future, ensuring you’ll have returns for retirement. Just remember that while long-term investing involves less work and risk, you can’t forget about them entirely. Diversify your portfolio, compound your earnings and continue to check in to make sure it continues to perform well.

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