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Why it is better to invest in the long term than in the short term

Posted: Wed Dec 11, 2024 10:19 am
by nurnobi24
Time is a key element for investors . Buying and selling quickly, following a short-term strategy, is not the same as letting your investment mature, betting on the long term. But which strategy is better? Although there is no single answer to this question, as it depends on the knowledge, skill and interests of the investor, in general it is better to invest in the long term . Let's see why.

Table of Contents
By investing for the long term, you will almost never lose money.
The risk of missing the best market days
Better tax treatment for your investment
Invest in the long term through inbestMe
By investing for the long term, you will almost never lose money.
The long term works in favour of investors. In fact, historically, over long periods, virtually no investor has lost money, even when investing in equities. A famous analysis by JP Morgan Asset Management highlights the benefits of long-term investing. No investor would have lost money in the US stock market over periods of at least 20 years , even by investing at the highest point prior to any crisis.

If you take as a basis the returns of a representative index of the whole world, such as the MSCI ACWI , which includes stocks from all over the world, including both developed and emerging markets, the data speaks for itself, at least if you look at different investment ranges.

Thus, in the period from 1989 to 2019, the difference between the minimum and maximum returns narrows as the investor remains in the stock market. According to a study by Bloomberg, these are the figures according to the period.


The risk of missing the best market days
In the short term, by constantly buying and selling, you risk gambling data russia phone number missing out on the best days on the market. And this means losses for investors. According to a study by JP Morgan Asset Management, investment returns are significantly reduced when investors miss out on the best days on the market .

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According to this analysis, for an investment made with an S&P 500 index fund between 1997 and 2017, investors lose around 3.7% of profitability, having missed the 10 best days of the market. And if this behavior is repeated for the 30 best days , the profitability of the portfolio becomes negative.

But there is another circumstance to take into account: the biggest market increases occur precisely in periods of instability and high volatility, which is precisely when investors choose to sell, driven by the knock-on effect caused by panic in the markets.

For example, if we look at the biggest rises and falls of the S&P 500 in the last 15 years, these have occurred in a very short period of time , and curiously, in periods of high uncertainty, both the 2008 crisis and the recent coronavirus crisis of 2020.


For example, and according to various studies by Fidelity, an investor who had invested €10,000 in the S&P 500 in 1980 would have earned €659,515 by 31 December 2018. If the five best days of the market are subtracted, the profit would be €426,993; and if the 50 best days are subtracted, the capital would be €57,382, 91% less.

Better tax treatment for your investment
In the long term, and by strategically choosing the products in which you invest, you can benefit from tax advantages. Specifically, you can benefit from tax deferral , and you will only have to pay taxes when you sell your investment, in the long term.

This is an important difference compared to short-term investment , since in all the operations you carry out to buy and sell securities, you will have to pay taxes on them when you obtain capital gains. And, in the long term, the difference is very important in favor of long-term investment.

Invest in the long term through inbestMe
Thanks to inbestMe , you will be able to invest in a carefully selected range of different products to take advantage of all the benefits of long-term investing. Whether through pension plans, index funds, ETFs or robo advisors, you will have the opportunity to invest in the best assets in the world and at low costs.