Key Takeaways:
- Long-term investing focuses on patience and compounding growth, investing in assets like shares, bonds, or funds with the intention of staying invested over many years to benefit from overall market growth despite short-term fluctuations.
- Regular investing through pound cost averaging helps smooth out market volatility, as investing smaller amounts consistently allows you to buy more shares when prices are low and fewer when prices are high, reducing the risk of trying to time the market perfectly.
- Using tax-efficient accounts like Stocks and Shares ISAs and SIPPs could help to maximise returns, sheltering investment gains from income tax and capital gains tax, which can be especially beneficial for medium to long-term investing and retirement planning.
They say good things come to those who wait, and that’s certainly the mantra of many investors. But what is long-term investing, and how can you make it work for you?
There are numerous reasons a person might choose to invest. For example, cash savings often lose value over time due to inflation, and investing could help to protect the worth of your money as the cost-of-living rises.[1]
Still, as anyone with a bit of financial know-how will tell you, investing isn’t a financial strategy best suited to short-term money goals. As markets fluctuate, the value of your investments may go up and down. While history suggests that – over time – investments generally beat cash savings in terms of growth, [1] it’s best to allow for a minimum of five years in the market to maximize the chances of an upward trajectory.
For many people, long-term investing can be a way to put their money to work, while accepting that markets – like life – don’t move in a straight line. So, let’s take a look at some tips and strategies that are best suited to long-term investing.
Jump to a specific section:
- What is long-term investing?
- How to get started with investing
- Invest in a tax-free way
- Plan for retirement
- Managed portfolios
What is long-term investing?
Long-term investing means putting your money into assets like shares, bonds, or funds with the intention of leaving it there for many years. Rather than trying to predict short-term market movements, long-term investors aim to benefit from overall economic growth and compounding returns over time.
Historically, global stock markets have trended upwards over the long term, despite periods of volatility. This is why many investors choose to stay invested and allow time to do the heavy lifting.[2] Of course, it’s worth remembering that past performance is not always a reliable indicator of future results
However, there are a few different facets to this approach. We spoke to our in-house investment team at Wealthify to get further insights on this.
Think about investing over holding just cash
Jessie Kwok, Chief Investment Officer
“Holding cash might feel safe, but over time, inflation quietly erodes its buying power. Investing gives your money the chance to grow and potentially beat inflation.”
Compounding interest
Tomos Russell, Portfolio Manager
“Compounding is where long-term investing really shines. You earn returns on your investments, then those returns themselves start generating growth – and over time, that effect can strengthen your investments.”
Pound cost averaging
Tomos Russell, Portfolio Manager
“When investing regularly, people naturally buy more when prices are low and less when prices are high. Over time, this can smooth out market ups and downs and remove the pressure of trying to time the market perfectly.”
This approach, known as pound cost averaging, is popular with long-term investors because it encourages consistency and discipline.
And how does it work? In a nutshell, it’s about investing smaller amounts of money regularly over time, rather than putting in a lump sum all at once. As Tomos points out, this helps spread investments across different market conditions and can help to smooth out volatility, making it well-suited to a long-term approach.
Stock markets rise and fall
Harry Dyer, Junior Investment Analyst
“Markets will always rise and fall – that’s normal. Diversifying across different assets and letting an investment team or investment manager oversee that mix for you could help to spread risk, so you don’t have to react to every headline or market wobble.”
How to get started with investing
The first step is choosing an account that fits your goals. Ask yourself whether you want to pick investments yourself or prefer a hands-off approach where experts will manage everything for you.
Wealthify offers a fully managed investing experience, where our investment team selects and manages diversified portfolios based on your chosen risk level. You choose how much to invest, and we take care of the rest – from rebalancing to ongoing management.
Invest in a tax-free way
Awale Arwo, Investment Analyst
“One of the simplest ways to improve long-term outcomes isn’t necessarily chasing higher returns, but instead to be smart when it comes to tax. Using an Investment ISA means any growth or income (within the allowance) stays entirely yours, free from income or capital gains tax. Considering the possibility for compound interest over time, this can make a meaningful difference in the long run.”
When you invest, you may have to pay tax on your profits or income if you earn over a certain amount. However, investing through a Stocks & Shares ISA can help you keep more of what you earn, as returns are sheltered from UK income tax and Capital Gains Tax.
Stocks and Shares ISAs
A Stocks and Shares ISA allows you to invest in the markets while enjoying tax-free growth.
Here’s why it could suit you:
- Tax-efficient investing
- Ideal for medium to long-term goals
- Managed portfolios tailored to your risk level
Who it might not suit:
- Those needing guaranteed returns
- Short-term savings goals
Plan for retirement
Investing for retirement is one of the most common long-term investing goals. Starting earlier can give your money more time to compound (aka, grow), potentially making your retirement more comfortable.
An easy first step is tracking down any lost pension pots you already have. Combining them into one could make it simpler to manage your retirement savings and see the full picture – but this will depend on your personal circumstances and the type of pensions you have.
Self-Invested Personal Pension
A Self-Invested Personal Pension (SIPP) is a tax-efficient way to invest for retirement, offering potential tax relief on contributions.
Why it could suit you:
- There’s a long-term retirement focus
- Tax relief boosts personal contributions
- Professionally managed portfolios tailored to your appetite for risk
Who it might not suit:
- Anyone needing access to their funds before retirement age
- Short-term investors
- Those with Defined Benefit Scheme pensions
Managed portfolios
Managed portfolios, such as those offered by Wealthify, are designed to save you time and remove complexity. Our investment team builds and manages diversified portfolios aligned to your appetite for risk so you don’t have to monitor markets daily and can get on with everything else in life.
General Investing Accounts
A General Investing Account (GIA) offers flexibility with no annual investment limits.
Why it could suit you:
- Flexible investing outside tax wrappers
- Managed, diversified portfolios
- Easy to add or withdraw money
- A good place for “overspill” if you use the whole of your £20,000 ISA allowance for the year
Who it might not suit:
- Investors concerned about tax efficiency
- Those who haven’t used their ISA allowances first
Summary
Long-term investing is about patience, perspective, and putting time on your side. By investing regularly, using tax-efficient accounts, and choosing a level of risk that suits your goals, you can give your money the opportunity to grow over the years.
While markets will always fluctuate, a long-term approach can help smooth out the bumps and keep you focused on what matters most: your future.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
