Investing for the long term can work pretty well because stocks do tend to go up over time and it is much easier then simply trying to trade every move the market may throw at you. Below I have listed 3 different reasons for why investing in the long term can be a powerful strategy.
1. Stocks Go Up
Over the long term the yearly average stock market return tends to be around 10%. What that means is that if you had bought an ETF that tracks the overall market in the past 20 or 30 years it would have been very profitable.
The stock market will probably continue to head up in the future, there is no reason to believe it will not. So, buying and holding has proven to be very powerful.
2. Strong Stocks do Better
History has also shown that buying strong stocks with great fundamentals is a great way to do better than the yearly average stock market return. This is pretty obvious, not all companies grow at the same rate. The top businesses in the world will always outperform the average.
Another great benefit of buying strong stocks that are undervalued is that many people attempt to buy these strong companies. The buying pressure alone helps the stock the go up.
3. Dividends
Dividend paying stocks can be very powerful because the dividends they pay out can add up over time. Basically a company pays a dividend to let their investors collect on a portion of their earnings.
Dividends are paid out regulary, this means that having a dividend stock is another way to get some extra income. Also as the company grows and the stock appreciates so too does the dividend that it is paying off. This gives it the potential to be an ever increasing income.
Great information! Thanks!