Does Long Term Investing Work?
Investing for the long term is an investment strategy that allows the individual investor to get a return on their money in the stock market without attempting to trade the short term ups and downs, which can be very difficult.
But does investing for the long term even work? Is the process of buying some stocks and holding them for the long term actually profitable? History has shown that the yearly average stock market return is around 10%, but that is in no way a guarantee of what it will be in the future.
Who in the world knows what will happen in the next few decades? The market may have a 30 year depression, there is always uncertainty. In addition to that if you pick bad companies with poor business plans then chances are you will underperform the market by a wide margin.
The good news is that, there are always great investments out there. There are a lot of techniques you can use to tell if a company is actually a good invesment or not, these include ratios such as the Price to Earnings Ratio, or the debt to income ratio you can tell a little bit about the company’s overall strength and where it is likely to go in the future.
Strong companies which are also undervalued will almost always beat the market, and when the stock market already has an average return of about 10% value investing can be pretty powerful.
In addition there are also a lot of dividend paying stocks in the market that can mean that the stock does not even have to go up for the investor to make money. They give you a way to pull an income from the stock market without having to learn stock trading which can be tricky and take some time to get the hang of.
Basically there is no guarantee that long term investing will work in the future, the only thing that is certain is that it has worked in the past. And by investing into fundamentally strong companies which are also paying a dividend you are able to put as many odds in your favor as possible. It does take some hope to buy and hold, but in the end it may all be worth it.
