Think long term when you are investing. Time is on your side


If you don’t have time to read through the whole article, you can check out our short version below:

“Time in the market” matters more than “timing the market”.

Benefits of long term investing includes the power of compounding as well as potential income streams.

Stay invested to grow your rice bowl

In the children’s tale, “One Grain of Rice”, a young girl, Renée cleverly outwits a stingy king who hoarded rice from his starving people. Renée is offered any reward when she does a good deed for the king. But all she asks for is a grain of rice, doubled each day for a month. By the end of the month, Renée has enough sacks of rice to feed her village—to the king’s surprise and outrage.

“Long-term” typically refers to an investment horizon of at least five years. To invest for the long haul, set aside money for investments consistently, with discipline. Also, ensure that these funds are not immediately needed, such as for daily expenses, so you will not have to sell your investments until much later.

“Time in the market” matters more than “timing the market”.

When investing, it is often difficult to “time the market”. This means knowing exactly when to buy an asset at a low price, then selling it at a higher price to get quick profits. Instead, staying invested longer or “time in the market” can reap more g(r)ains.

1. Let compounding work its magic

The story about rice illustrates exponential growth. While few investments can deliver such growth, most work on the principle of compounding.

Compounding has been described as the “eighth wonder of the world”—and no wonder. Earnings, in the form of dividends, interest or capital gains, are added back to the principal sum. This generates more returns than just on the principal. Hence, compounding allows you to grow your money substantially over a period.

Generally speaking, the earlier you start investing and getting returns—and the longer you hold your investments—the better.

2. Create potential income streams

Some investments, such as dividend-paying stocks, bonds, real estate investment trusts, unit trusts and exchange traded funds provide dividends or coupons (in the case of bonds). Dividends and bond coupons are usually paid at fixed intervals, such as quarterly, semi-annually or annually. These, together with capital gains, contribute to your overall investment profits.

Being invested for the long haul, you can collect these payouts and create streams of stable, passive income.

You can hold one investment to leverage the compounding effect, while enjoying the dividends or coupons offered by another investment for income.

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