When investing, you can make long- or short-term investment decisions. Which you choose may be determined by your risk appetite, and other financial needs. Long-term investments are investments that are held for at least five years, though often for more than ten years. In this article we’ll explore some of the reasons why long-term investing can be the best strategy.
Time in the market
There is an old investment adage that says it is ‘time in the market, not timing the market’, that is the key to higher returns. Timing the market refers to being able to accurately predict the highs and lows of the market, and act accordingly. Realistically, even investment experts are unable to do this all the time. Past performance of stocks does not always reflect how they will perform in the future. Global events can throw markets into turmoil, but not all stocks will act the same. Regardless, by investing for longer, you have more chance of riding out the turbulence and market volatility. Your shares are then protected from losses you would have made by selling at the low, allowing them more time to bounce back.
Compound interest
Compound interest is where the returns you make* on your investment are reinvested, and generate returns of their own. So in the future you will make returns on your original investment as well as the returns themselves. Your money is working harder for you, building your investment pot efficiently. The optimal conditions for compound interest are investing as much as you can for as long as you are able. However, making smaller contributions will benefit from compound interest too. You can find out more about the power of compound interest in our previous blog post.
Beating inflation
The Bank of England announced at the end of July 2026 that the UK’s inflation rate is currently 2.6%. This is above the 2% target for inflation, but within the threshold of 1% each side of the target that triggers concerns. Back in 2022, inflation spiralled, reaching a peak of 11.1% in October 2022. Investments will often outperform inflation over the long term, as explained in our recent blog post. However at this time of high inflation, in the short-term that would not have been the case. At this time, funds invested would have been worth less in real terms, despite the fact they may have grown since originally invested. By choosing a long-term approach, and not reacting to the high inflation, the same investment pot will now be worth more in real terms, due to the drop in inflation.
Risk appetite
Investing over the long-term will give you the opportunity to invest in higher risk options. These often have higher growth potential, with the prospect of higher returns. Of course, they may result in greater losses too. By investing over the longer term, there is more chance for the stock to recover following a fall.
Long-term investing in private pensions and Stocks and Shares ISAs
Private pensions
Pension contributions are a tax-efficient, long-term investment. Funds invested in private pensions are not accessible until the individual turns 55 (rising to 57 in April 2028). Tax payers will receive tax relief on their pension contributions. For every £80 that is paid in, HMRC will add a further £20. This is paid directly into your pension pot, growing it without you having to do anything. Higher- and additional-rate taxpayers are able to claim a further 20-25% in tax relief through their tax returns. This is paid to the individual directly, not into their pension pot.
Funds contributed to pensions have a great chance of growth* due to the long-term nature of the investment. Even those who do not start saving into a pension until later in life will benefit from compound interest. The inaccessibility of the funds is beneficial to those who may otherwise be tempted to withdraw investment in the shorter term.
Stocks and Shares ISAs
Currently, you are able to invest up to £20,000 per year into Stocks and Shares ISAs. Any growth* on these investments is free from both income tax and Capital Gains Tax. Whilst you are able to withdraw funds from Stocks and Shares ISAs at will, we always encourage long-term investing where possible. Any funds withdrawn from your Stocks and Shares ISA will be subject to tax again.
Historically, investing in the stock market has yielded greater returns than savings accounts. Plus, returns on stocks are more likely than savings accounts to beat inflation in the long-term, if inflation starts to rise. These are some of the reasons we recommend Stocks and Shares ISAs over Cash ISAs, for those interested in maximising returns.
How Willday Wealth Management can help with long-term investing
Without external help, it can be easy to become an emotional investor. When it is your own funds in question, it can be easy to allow emotion to dictate your next move. This could lead to you withdrawing money when a stock falls, to save further losses. Removing emotion from this decision, and keeping the funds invested, could lead to returns greater than the initial investment.
Willday Wealth Management are on-hand to help with your investments into private pension schemes and Stocks and Shares ISAs. Our team of experts will create a diverse portfolio of investments based on your investment goals and risk appetite. We understand the different nuances of long-term investment. We’ll advise on how to make your money work hard for you. Call us on 0116 222 0119 or email hi@willdaywm.co.uk to arrange an initial consultation.
*With investing your capital is at risk and you may get less than what you invested
