Long-term Investing = Long-term Growth

June 30, 2017

by Erwin Baluyot

One of the questions frequently asked when investing is time horizon – also known as the length of time one is willing to park his fund. While there are a gamut of instruments that can accommodate quick investing, seasoned fund managers and practitioners would always recommend long-term over short.


Based on research here are the top 4 reasons why:


1. You take emotions out of the investing equation


Investing long-term takes away worry from an investor especially when the market drops. He becomes more forgiving and believes that volatility is short-term. Long-term investing gives peace of mind.


An investor can still sleep well at night no matter how unstable the market has been on any particular day because he knows that he is investing for his future ten years later.


2. You let the power of compounding do its job


Compounding power of money works well because of one key ingredient – time. The longer you stay in the market, the more that the compounding effect shows off.


One of the reasons why Filipinos refrain to invest is because of the notion that it takes too much time for their investment to grow. We are fond of immediate results, hence instant gratification. That’s why many people are still hesitant to invest.


On the other hand, there are people that are still fans of “get-rich-quick” money schemes without knowing the underlying instruments or systems.


They certainly make the perfect targets for scams.


Either they incur significant losses, or pocket small, short-term profits (then miss the opportunity to let their money grow much more). They’re killing the magic even before it starts.


It is the time in the market, not timing the market, which spells success in investing.


3. You can fix your investment mistakes


As the adage goes, ‘time is a great healer’. This is true with investments. Going long-term gives you the advantage of recovering losses in the past.


A bad year can be balanced off by successive good years. History has proven that after significant losses, the market picks up momentum and climbs again to sustainable levels (true to the concept of the 5 year cycle).


The Philippine Stock Exchange Index (PSEi) performance for the last 30 years shows that albeit the local market experienced upward and downward trends through the years, the overall result is still positive.


Although short-term corrections seem random, the market tends to reflect the overall growth and productivity of the economy in the long run.


PSEi from 1986- Present, highlighting some of the notable market tumbles.
PSEi from 1986- Present, highlighting some of the notable market tumbles.


4. You avoid making costly decisions


An investor who is directly invested in the market may gain at times and tries to beat the market again and again.


He may succeed and achieve small wins, without knowing that an average investor trying to beat the market may inflict more losses than profit.


Worse if he is invested in an actively managed fund such as mutual funds, in a way the compounding effect wears off, the investment is booked at wrong times, and the fees accumulate or are repaid every time he transacts. Thus, making him “manage the fund manager”.


“Patience is a virtue, and persistence is the key to success.” These two values hold the core principle of long-term investing.


If you are saving up for your financial dreams in the next ten to fifteen years, there is really no need for you to put your money in short-term investments, unless you want to gain short-term earnings for long-term investments.


Let the compounding effect kick in and do wonders on your investments’ performance.


You have worked hard enough; now allow your money to work for you.


This article also appeared on the Rampver Financials’ official Medium Publication, Rampver Reads.