Long-term investing guide

Stockspot explores what is meant by long-term investing and what are the benefits of planning for the future.

Everyone has a dream for the future. If you close your eyes and think of the next five, 10, or 30 years, what comes to mind?

Maybe you look forward to retiring in comfort and enjoying the great outdoors. Or you could be imagining raising your kids in a cosy little home. You might want to travel the world every so often. Perhaps you just want to give your kids the best opportunities in life. Whatever your life goals are, long-term investing is a strategy that can help you get there. 

How long is long-term when investing?

As a rule of thumb, you should give your long-term investments at least seven years to bear fruit. This is because the stock market is characterised by short-term volatility. This means sometimes you might see temporary dips in the value of your shares.

If you’re investing for the short-term, say less than three years, you should make sure your investment portfolio is fortified with a good amount of defensive assets

But if you’re a long-term investor, you’ll be in a better position to take on a greater amount of risk (and reward). You will be able to withstand any temporary declines in your portfolio value. 

What are the benefits of long-term investing?

Unlike day traders or speculative investors who try to get rich quick, as a long-term investor you’ll enjoy the benefits of having more time on your hands and more money in your pocket. 

Why’s that? Because to be a successful day trader, you will need a lot of time. This time will be spent on researching individual companies in the hope of outperforming the stock market as a whole.

If you would prefer to spend your weekends in the park or on the beach rather than analysing company reports and crunching the numbers, then long-term investing is for you.

What’s more, as a long-term investor, you can avoid wasting money on transaction costs. This includes frequent buying – through brokerage fees, which can cost you anywhere from a few dollars to fifty dollars. And selling – through capital gains taxes, which you have to pay every time you sell stocks for a profit.

And remember: the longer you hold onto your investments, the better the return. This is called compound growth, or simply put, growth on top of growth – sounds good, doesn’t it? 

To get an idea of the power of compound growth, imagine investing $10,000 today and topping up $500 each month. If your investments grow at 8% per year, you’ll reach $51,000 in five years. However, if you stick to your strategy for 10 years, you’ll be able to put more than $113,000 towards those dreams you had in mind.

What are the things to consider when investing for the long-term? 

Apart from your goals and time horizon, when you’re investing for the long-term you should also ask yourself if you should pay off any high-interest debt before you start investing.

If you have a credit card or a loan that you’re struggling to get on top of, you’d be wise to pay it off before you put your money into a long-term investment. This is because the high interest rates could outweigh any gains you make in the stock market.

Once you’ve paid off your debt, consider if you’ll need a source of income from your long-term investing strategy. If you’re approaching retirement, for example, you might consider a higher allocation towards assets that pay a fixed income, like bonds or cash, or a basket of stocks that consistently pay high dividends.

Stockspot can help you understand what mix of investments are best for you. We look at your your time horizon, goals, income requirements, and financial situation. Simply fill in our automated questionnaire and we’ll give you a personalised portfolio recommendation.

Which is the best investment for the long-term? 

Your best long-term stocks to invest in won’t be just one single stock or asset class. Rather, they will be invested in a whole basket of them. By investing in exchange traded funds (ETFs), you’ll own a slice of hundreds of companies listed on the Australian and international share markets. 

Throughout the years, some of those companies will boom and others will bust. Sometimes the entire stock market will languish for months or even years. That’s why a good long-term investment strategy will diversify across not only shares, but assets that can protect you against inflation, like gold, and assets that pay a regular return regardless of a sector’s profitability, like bonds.

Many long-term investors choose to invest in real estate, whether it’s their own home or an investment property. Property can be a safe investment that brings you good returns over time, but it’s not without its downsides. Before you put all of your hard earned money on a single property, make sure you understand how the numerous costs involved with property ownership can eat away at your long-term returns. Because of the costs and headaches, you may decide you’re better off investing in low-cost property ETFs like those accessible through Stockspot themes.

How to invest in long-term investments?

There are more than 2,000 companies listed on the Australian share market alone. And there are a number of ways of investing in them. As a long-term investor, it’s important you choose a diversified, low-cost option that can match the returns of the entire stock market. 

The best way to do that is through ETFs. ETFs track the return of a whole asset class, a specific sector or theme, or an entire market. Unlike directly buying shares, you won’t have to do your own research on individual companies when you invest in ETFs.

Unlike actively managed funds, ETFs won’t charge you a premium for a fund manager’s supposed skills in stock picking or timing the market. Managed funds, like the similar Listed Investment Company (LIC), tend to underperform the market anyway, so why pay more to receive less?

Once you’ve determined your long-term goals of investing, you can get started. Stockspot recommends putting your money to work through a diversified, low-cost portfolio of stocks. If you stick to your strategy, you’ll soon be living the dream. It can be that comfortable retirement you’ve been working towards, an adventure abroad, or a place to call home.

Stockspot is Australia’s largest online investment adviser. We build you a smart, personalised investment portfolio using proven strategies to grow your wealth faster than leaving your money in the bank.
  • Chris Brycki

    Founder and CEO

    Chris has over 25 years of investment experience and spent most of his early career as a Portfolio Manager at UBS. Chris has been a member of the ASIC Digital Advisory Committee and volunteers as a member of the Investment Committee for the NSW Cancer Council. He holds a Bachelor of Commerce (Accounting/Finance Co-op Scholarship) from UNSW.

Founder and CEO

Chris has over 25 years of investment experience and spent most of his early career as a Portfolio Manager at UBS. Chris has been a member of the ASIC Digital Advisory Committee and volunteers as a member of the Investment Committee for the NSW Cancer Council. He holds a Bachelor of Commerce (Accounting/Finance Co-op Scholarship) from UNSW.

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