Help your clients understand the importance of long-term investing (2024)

Client Conversations

Help your clients understand the importance of long-term investing


This Q&A can help explain how investing for the long haul can help put the power of time on your side.

  • How can you benefit from investing over the long term?
  • What is the advantage of getting an early start when investing?
  • Is it a good idea to try to time the markets?
  • When is the best time to begin a long-term investment program?

How can you benefit from investing over the long term?

One of the advantages associated with long-term investing is the potential for compounding. Here’s how it works: When your investments produce earnings, those earnings get reinvested and can earn even more. The more time your money stays invested, the greater the opportunity for compounding and growth. Keep in mind that while compounding, overall, can have a significant long-term impact, there may be periods when your money won’t grow. While there are no guarantees, the value of compounded investment earnings can turn out to be far greater over many years than your contributions alone.

What is the advantage of getting an early start when investing?

By starting to save early, you can benefit from the power of compounding, whereby the earnings of your account earn additional earnings. Over the course of decades, compounding can make a significant difference.

Take the example of two hypothetical co-workers, Jill and Edwin. Let's say they contributed the same amount of money to their firm's retirement plan for the same number of years ($100 a month for 20 years, for a total of $24,000 invested) and earned the same average annual return (8%). The only difference is that Jill begins making contributions at age 35, while Edwin waits until he is 45 to start. By age 65, Jill would have accumulated $130,519 while Edwin's balance would be $58,902.

Is it a good idea to try to time the markets?

In general, it’s a poor idea to attempt to time the markets. Too often, investors are spooked by a stock market downturn and flee the market. This can lock in losses and prevent investors from reaping the rewards when the market rebounds.

Consider the example of a hypothetical $10K investment in the S&P 500 Index made on July 1, 2013 and held for 10 years. Staying invested through the two bear markets during that period may have been tough, but this patient investor's portfolio would have nearly trippled. If that investor had instead tried to time the market and missed even some of the best days, it would have significantly hurt their long-term results — and the more missed "good" days, the more missed opportunities.While you may hear a lot of talk about timing the market, successful investing is more about time than timing.1

Missing just a few of the market’s best days can hurt investment returns

Help your clients understand the importance of long-term investing (1)

Sources: Standard & Poor's, RIMES, as of 06/30/2023. Values in USD. Past performance is not indicative of future results.

When is the best time to begin a long-term investment program?

No one has figured out the best time to invest. You can take the guesswork out of it by making a regular fixed-dollar investment, for example, every month or every paycheck. This is called dollar cost averaging. If you’re contributing to your retirement plan, you’re probably already using this strategy.

Because the prices ofinvestments fluctuate, dollar cost averaging allows you over the long term to:

  • Buy more shares when prices are lower
  • Buy fewer shares when prices are higher

Dollar cost averaging can lower your average cost per share of an investment, but it doesn’t guarantee a profit or protect against loss. You should consider your willingness to keep investing when share prices are declining.

Updated on December 22, 2023

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Client Conversations Investing Strategy

1Hypothetical results are for illustrative purposes only and in no way represent the actual results of a specific investment.

The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

Standard & Poor’s 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The S&P 500 Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.

Help your clients understand the importance of long-term investing (2024)


Why is it important to invest for the long term? ›

One of the main benefits of a long-term investment approach is money. Keeping your stocks in your portfolio longer is more cost-effective than regular buying and selling because the longer you hold your investments, the fewer fees you have to pay.

Why is it important to take a long term view of your investments? ›

Markets tend to be more volatile in the short term, but smooth out over the longer term. Instead of panicking during periods of volatility or trying to time the market, the savviest course is to stick to your plan that is based on your time frame and risk tolerance.

How do you explain the importance of investing? ›

Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.

What are the two most important factors when investing for long term growth? ›

There are two main types of factors that drive returns. Macro factors like the pace of economic growth and the rate of inflation can help to explain returns across asset classes like equity or bond markets. Style factors can help explain returns within those asset classes.

What is a long term investment? ›

Long-term investments can be defined as those assets that an individual or entity holds from more than 12 months. They can either be bonds, shares, monetary instruments or real estate.

What are the most important things to consider when investing? ›

To help better prepare you and potentially reduce your risk, here are some things to consider before investing.
  • Set clear financial goals. Before investing, consider creating a plan. ...
  • Review your timeframe and comfort with risk. ...
  • Research the market. ...
  • Check your emotions. ...
  • Consider where to invest your money.

What is also an important aspect of investing? ›

Key Takeaways

In investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. Investors can take the do-it-yourself approach or employ the services of a professional money manager.

What is the golden rule of investing? ›

Warren Buffet's first rule of investing is to never lose money; his second is to never forget the first rule. This golden rule is key for long-term capital protection and growth. One oft-used strategy to limit losses in turbulent markets is an allocation to gold.

What is the biggest threat to all long term investments? ›

Possibly the greatest of these risks is that a portfolio with too much cash won't earn enough over the long term to stay ahead of inflation and that it won't provide enough protection against inevitable downturns in stock markets.

Is it a good time to invest for long term? ›

Now is as good a time as any to invest in the stock market. Long-term investors with a horizon of years, not days or weeks, will do better to invest their money as soon as they can. The adage "time in the market beats timing the market" is true. Over long periods of time, stocks appreciate faster than inflation.

Why is investing better long term than saving? ›

Investing provides the potential for (significantly) higher returns than saving. As your investments grow, they allow you to take advantage of compounding to accelerate gains. Investing offers many different access points and strategies, from individual stocks and bonds to mutual or exchange-traded funds.

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