We think investing in the stock market should be for the long term. Many experts say you should only consider investing if you will not need to withdraw your money for at least five years, and preferably longer.
In the short term stock markets can go up or down. If you need to make a withdrawal when share prices are down, you could make a loss.
By comparison, stock markets tend to rise over the long term. So taking a long view makes sense. Long-term investing is less risky and means you’re more likely to end up with a good return that beats cash savings and outpaces inflation.
Investing for the long term also offers the potential to benefit from the arithmetical “magic” of compound returns.
For example, if your portfolio grows at an average of 7% a year, it will double in value over 10 years. Then, at the same 7% annual growth rate, it will double again over the next 10 years — meaning your portfolio has quadrupled in value over 20 years. Then, another 10 years on it will have doubled again, so that after a total of 30 years your portfolio is worth eight times its original value!