Long-term investments are assets that a company or individual intends to hold for more than a year. While a short-term investments are assets that a company or individual intends to hold for a year or less.
The long-term investment account differs largely from the short-term investment account in that short-term investments will most likely be sold, whereas the long-term investments will not be sold for years and, in some cases, may never be sold.
There is a significant difference between long-term and short-term investing. A lot of people, particularly millennials, don’t invest in stocks because they are afraid of losing money in the short term. If one is investing for the long term, then there is very little risk in legacy markets.
Stocks can go down, but over any 10 year period in history they are always up at least 7% per year when the gains and losses are averaged out. With a longer term horizon, stocks have literally never been a bad investment.
So how does one actively invest in markets and maximize their potential earnings?
COMPOUNDING!
As Albert Einstein once said:
“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't pays it.”
The world’s most famous scientist issued this comment about compound interest and time has shown that Einstein was correct.
As defined by Investopedia, “Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth, where only the principal earns interest each period.”
As mentioned earlier, compounding one’s gains is the key to accumulating wealth, period.
There are three key rules to maximize the advantages of compounding:
— Reinvest dividends or interest into the asset.
— Add more to the investment whenever possible.
— Invest over a long period, the younger one starts, the more powerful compounding will be.
Compounding cryptocurrency investments is far more challenging than in legacy markets.
When you are young you can invest in almost any asset as younger investors should keep the long time-horizon in mind. Following these strategies is the surest way to leave you sitting financially pretty and you’ll have a nice stack when you need your money the most!
