WHAT ARE THE BENEFITS OF LONG-TERM INVESTMENTS

The long-term vs. short-term debate has been going on for years. Both types of investment can work, of course; it’s a matter of preference. Here, we’re going to look at the benefits of short-term investment.

It’s less stressful

Short-term investing can get you quick wins, without a doubt. Long-term investors, though, don’t have the day-to-day worries. You don’t have to check the market three times a day or check your portfolio each morning. If you’re already pushed for time, long-term investment could be a better option.

It’s easier for beginners

You can invest without having to be an active trader. It’s as simple as meeting with your investment advisors and picking out a portfolio of businesses you trust. Then all you have to do is stick with them. Simple.
You can benefit from compounding

Over the long-term, compound interest can make a big difference to your investment. Even something like a 3% yield can double your money every 33 years or so in the right circumstances. Some people retire as millionaires due to compound interest, and you can too. Take compounding seriously and you can reap the benefits.
You’ll make fewer mistakes

No investors get it right all the time, but long-term investors are usually wrong less. If you stick with your portfolio over the long-term, you’ll often find you’re able to ‘ride out’ any errors. Strong investments will last through the bad times. Even if a few don’t, your others will often compensate.
It’s less emotional

Long-term investors don’t tend to make emotional decisions. If you’ve held onto an investment for twenty years, then a 10% jump in the market isn’t going to worry you. If you only bought the stock yesterday, it might. If you’re focused on long-term growth, you’re less likely to panic and sell (or buy) at the wrong time. You can take a more passive view on almost any jump or fall.
Summing up

Both short-term and long-term investments can be beneficial. However, we hope this has helped emphasise what you can gain from taking a long-term approach. If you’re at all unsure about investing, remember you can always pick up the phone and give us a call.

ARE LONG-TERM OR SHORT-TERM INVESTMENTS BETTER?

If you are looking to invest some funds in something other than traditional bonds, you might be interested to learn about investing in commodities.

Natural resources that can be sold and processed are referred to as ‘commodities’. For the purposes of the financial markets, commodities traded include metals, energy, agricultural products and minerals.

The prices of commodities tend to fluctuate greatly due to rise and fall in demand driven by factors such as seasonal climate changes and the availability of resources. Price can also be heavily influenced by an interaction between consumer habits and economic factors.

Trading of commodities takes place either on the futures exchange or the cash market and typically does so in very large quantities.

Commodity terminology

‘Soft commodities’, such as cocoa beans and sugar, are grown, as opposed to being mined or extracted. Because of their vulnerability to spoilage and environmental factors, their price is inclined to be very volatile in the short term.

‘Hard commodities’, such as oil and natural gas, are mined from the ground or obtained from other natural sources and are typically the most popular choice for investors.

‘Emerging commodities’ are commodities that some people predict will become booming markets in the future and can be traded only by buying stock in companies that deal in these particular areas.
Who trades commodities?

‘Hedgers’ are investors who buy or sell commodities in order to balance and manage risk. These trades provide a hedge against a downward movement by other securities.

‘Speculators’ are investors who predict the way a certain commodity will move and will take on the associated risk.

‘Producers’ are the people that actually produce the commodities and might want to use a futures contract to offset any future risk through price movements.

‘Brokers’ are individuals or companies who buy or sell commodity contracts on behalf of their clients.
In conclusion

Commodities are one of many items that can be traded as part of an investment portfolio. There are advantages and disadvantages to trading commodities and investors are advised that, whilst there is undoubtedly much money to be made, it is also possible to lose heavily. To discuss adding commodities to your investments, talk to one of our financial team today.

THE POWER OF COMPOUND INTEREST

It’s more important to invest early in life than it is to invest big. Counter-intuitive, but true. This is all down to compound interest, a force that’s sometimes called the ‘eighth wonder of the world’. But how does this all work?

Let’s start by comparing it to simple interest. Simple interest is easy to calculate. Your interest each year is your principal (the amount you invest) multiplied by the rate of interest. The returns are linear, never changing year after year.

Compound interest is a different beast. Instead of being linear, it’s exponential. Every penny and cent of interest is reinvested, the returns increasing as the interest accumulates. If you invested in a 20-year investment product with a 7% interest rate, you would receive twice the interest through compound than you would through simple interest. Impressive, right? But here’s the key. If you invested £2000 at 7% for ten years, you’d only earn two-thirds of the interest that you would get by investing £1000 for twenty years. A third more interest, from half the principal! Exponentials are exceedingly powerful. Early beats big.

 

There’s a problem here for those who start investing late in life. They need very high returns to catch up with those who started investing early. But high interest rates are rare. And those that are available are often risky, especially so in today’s low-interest rate world.

There’s another problem too. Debts accumulate according to the laws of compound interest. Worse still, they often chug away at a faster rate than our investments. Sadly, advertisers are much better at promoting credit than they are at promoting the high returns of thrift. They dupe many into accumulating debt during their best-earning years, instead of accumulating cash.

So how can we take advantage of compound interest, without it taking advantage of us? The solution is twofold. The first is to knock debt on the head. Eliminating just a little more than the monthly minimum can yield huge rewards in the long-term.

The second is to invest early, reinvest wholeheartedly, and to do so with good investors – investors who can intelligently take advantage of what opportunities there are. Get compound interest working for you as soon as possible. Its power only grows over time. In the hands of a good investor like Stable Rise, it can be very powerful indeed.