Long term investing simply means investing for the long run through the practice of buying and holding investments. It is not about speculating on short term price movements with the intention of selling quickly.

At the minimum, long term implies holding an asset for more than one year which is the required holding period to qualify for lower tax rates on any capital gains generated from the investment.

A general long term investment might last one to five years, but many investors look even further ahead. There is extensive research showing that people tend to be poor at timing markets because emotions such as fear, greed, and excitement get in the way of judgement.

Even though most investors intend to invest for the long term, human nature often tempts us to act like traders or flippers seeking quick wins. To overcome the belief that we are smarter than the market, it helps to understand not just what long term investing is but also why it matters and how to approach it.

Why Invest Long Term

Beyond having a lifestyle with less stress about daily market movements, long term investing offers several benefits.

Tax savings are one of the clearest. Long term capital gains are taxed at lower rates than short term gains, and capital gains taxes are usually not due until the asset is sold. This allows your investment to grow without interruption.

Long term investing also reduces transaction fees, improves stability, and allows compounding to work more effectively for you.

Now that we have covered the what and the why, let us look at different methods of how to invest for the long term.

Dollar Cost Averaging

Dollar Cost Averaging, sometimes called Constant Dollar investing, means spreading an investment over time instead of placing the full investment all at once.

For example, if you plan to invest one hundred dollars into stocks in the S and P five hundred, you could invest ten dollars a day over ten days rather than investing the full amount immediately. This can help reduce volatility and allows you to ease into an asset class.

Separate Emotions From Investing

This principle is simple to understand but difficult to follow. Investments can create moments of strong excitement or disappointment and acting during such moments is rarely wise.

For example, an investor might receive an unexpected offer on a real estate asset and feel tempted to sell immediately. However, accepting the first offer is often not the best choice because buyers may be willing to pay more and other potential buyers may still appear.

A fun real world example comes from Bloomberg News which shared the story of a couple who sold one acre of land to Apple for one point seven million dollars. They were glad they did not take the first offer.

Stick to Your Plan

Creating a plan for long term investing is essential and typically requires deep thought and careful construction. Many individuals choose to work with a professional financial advisor who can help build such a plan.

Once a plan is set, staying committed is critically important. Most long term investment strategies take years to execute and require patience. While economic swings or market issues may tempt you to change direction, remaining consistent with your plan gives it time to work.

This ties closely to the earlier point about keeping emotions separate from investment decisions.

Focus on Compounding

Compounding is the process of allowing your earnings to be reinvested so they can grow further. Albert Einstein described compound interest as the strongest force in the universe.

Consider this example. You have one hundred dollars to invest and you are given two choices.

• Your money will double over ten years.
• Your money will earn eight percent per year for ten years.

Many would choose the first option, ending with two hundred dollars. However, the investment earning eight percent annually would grow to two hundred and fifteen dollars and eighty nine cents after ten years. A much better result.

Compounding usually involves stable assets and long holding periods. This is one reason we appreciate farmland investing at AcreTrader because it has shown decades of stable compounding performance.

Avoid Trading

This idea may already be clear but trading is often the opposite of long term investing. There are situations where taking profits early can be rational especially if better opportunities appear.

However, frequent buying and selling carries many downsides. It increases risk, creates unwanted tax liabilities, and can lead to excessive fees.

Final Thoughts

Long term investing offers clear advantages and many investors already include long term elements in their portfolios. Still, thoughtful design and disciplined execution are essential for success.

Research, planning, working with a financial advisor, thinking long term, and preparing for both highs and lows are all important pieces of the journey.

Supplemental Information

The content above is not a product comparison. It is intended for general educational purposes only. Any performance mentioned is historical and does not guarantee future results. All investments carry risk including the potential loss of principal. Diversification does not guarantee a profit or protect against loss during a downturn.

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