I. Defining Long-Term Investment Strategy
Generally, a long-term investment strategy focuses on owning securities for a duration of longer than five years, usually for long-term goals such as retirement. As long-term investors value fundamental analysis and plan to hold investments for an extended period of time rather than short-term market activity, this strategy looks for businesses with solid fundamentals and the potential for steady growth.
II. Duration for Long-term Holding of Stock
In terms of investment strategy, a long-term holding period of at least five years is recommended. This period of time enables investors to weather fluctuations in markets and take advantage of possible long-term growth trends, which is associated with many long-term financial goals. Furthermore, it prioritises value and potential for growth over seasonal fluctuations in the market.
III. Defining Passive Investing
Passive Investing is a long-term investment strategy that involves buying and holding a basket of securities with the goal of eventually turning a profit.
Example: For instance, investors purchase shares while putting up money in hope of receiving a profit or dividend from the company when the share price rises (capital gain). Furthermore, passive investment can be very profitable if you make the right investment decisions. However, long-term price fluctuations also lead to risk (Vannak, 2021). To avoid risks, this type of investor should be choosing portfolio diversification methods.
IV. Defining Active Investing
Active Investing is different from passive investing in terms of duration. Active investment focuses on short-term investment, such as when investors regularly buy, sell or trade in the market and seek to profit from price fluctuations. Furthermore, active investment can be very profitable when the market price increases in the short term, but there are large risks for a careless or unlucky investor.
V. Benefits of Long-Term Investment Strategy
i. Better Long-term Returns
Research repeatedly shows that long-term investors usually receive higher returns compared to short-term traders. Long-term investors can benefit from greater returns over time by capturing the overall rising trend in the market with their investments across market cycles. Furthermore, regular trading frequently results in lower profits because of commission fees and hasty choices. Long-term strategy prioritises consistent growth.
ii. Investments Can Grow Despite of Market Fluctuations
Long-term investors are less affected by temporary market fluctuations. Their ability to endure market downturns without losing their investments at a loss enables them to let their investments grow and recover as soon as market conditions improve. The long-term perspective enables you to pay attention to your holdings’ fundamental worth rather than their daily price fluctuation.
iii. Compounding with Dividend Stocks
One common long-term investing approach is to purchase dividend-paying stocks. Compounding, the process of reinvesting dividends so that the returns on those returns eventually create new returns, significantly speeds up the development of wealth.
iv. Cost efficiency
Generally, long-term investing carries less transactional costs than regular trading because investors that have lower turnover save money in term of taxes, broker fees, and other expenses, which boosts the total return on investment.
Overall, in the securities market, a long-term investing plan is an effective strategy for building wealth. Investors may achieve greater profits and reduce expenses which will result in a more secure financial future.
***Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or investment advice. The SERC is not liable for any losses or damages caused by using it in such a way.
Prepared by: Securities and ExchangeRegulator of Cambodia, Department of Research, Training, Securities Market Development and International Relations
Email: [email protected]
Telephone: 023 855 611
