Home BUSINESS Advantages of Long-Term Stock Holding

Advantages of Long-Term Stock Holding

BUSINESS — August 3, 2022 · 179 Comments

Holding investments for more than a year is considered to be a long-term investment strategy. Holding assets including bonds, stocks, exchange-traded funds (ETFs), mutual funds, and more is part of this strategy. Long-term investors need to be disciplined and patient because they must be willing to accept a certain level of risk while they wait for greater profits in the future.

Many financial experts advise long-term stock holdings. In only 11 of the 47 years from 1975 to 2022, the S&P 500 saw losses, which makes stock market returns very volatile over shorter time periods.

Over the longer run, investors have historically had a substantially greater success rate.

Investors may be tempted to dabble in equities in a low-interest rate environment to enhance short-term profits, but doing so makes less sense and yields lower long-term returns. In this article, we demonstrate how owning stocks for a longer period of time may be advantageous for you.

Better Over Time Returns

A particular class of investments is referred to as an asset class. They have similar traits and qualities to fixed-income assets (bonds) or equities, sometimes known as stocks, for example. Your age, risk profile, level of capital, investment objectives, and risk tolerance will all affect which asset class is ideal for you. How about the greatest asset types for long-term investors?

Stocks have typically outperformed practically all other asset classes, according to several decades’ worth of asset class returns. Between 1928 and 2021, the S&P 500 returned an average of 11.82 percent annually. This is a better return than the 5.11 percent return on 10-year Treasury notes and the 3.33 percent yield on three-month Treasury bills (T-bills).

In the equity markets, emerging markets have some of the largest return potentials, but they also carry the highest level of risk. The average yearly returns for this class have historically been excellent, but short-term swings have hurt their performance. For instance, as of April 29, 2022, the MSCI Emerging Markets Index’s 10-year annualized return was 2.89 percent.

Both small and large caps have produced returns that are above average. For instance, the Russell 2000 index, which evaluates the performance of 2,000 small businesses, had a 10-year return of 10.15 percent.

Laim Fren

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179 Comments

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