The first step is to differentiate between short-term and long-term investing. The short term is usually weeks, months, sometimes 1-2 years. What matters most here is price change, liquidity and how the market will react to macro data, central bank decisions or media headlines. In such a horizon, information “noise” often outweighs the fundamentals, and the risk of a bad entry or exit moment increases.
A long term is a horizon counted in years (often 5, 10, 20+). The logic of the game changes there: compound interest and dividends come into play. Even deep bear markets are statistically more likely to become an episode to “wait out” than a reason to capitulate. Although, of course, this does not mean that there is no risk in the long term – there is, and it can also be painful.
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Important: The company and valuations contained in the text are for informational purposes only and do not constitute a recommendation or any other form of suggestion for the purchase or sale of financial products. Investment decisions should be preceded by your own analysis of risk and financial situation.
Long-term investing – who is it the best option for?
Long-term investing is primarily for people who have money specific long-term goals (retirement, own contribution, children's education, financial cushion “for the future”)can accept fluctuations in the portfolio value and want the capital to work despite inflation.
Its advantages are simple: less susceptibility to emotions, greater chance of “riding through” worse market periods and the ability to build wealth thanks to regularity and compound interest — often without the need to make frequent transaction decisions.
In practice, long-term investments are made in several main asset classes, of which these are the most popular stocks (often through index funds/ETFs) and bonds. Then there are deposits, treasury bills, real estate (increasingly also through REITs), gold and a wide basket of raw materials.
Stocks: the biggest growth engine, but with the highest volatility
In the long run, it was stocks that offered the most the highest rate of returnbecause the investor is rewarded for bearing the risk related to the economic situation and company profits. Globally, the MSCI World broad developed markets index has had a history over several decades annual compound rate of approximately 8 percent.which clearly shows the potential of the stock market in the perspective of decades.
On the other hand, the same history includes periods of many years of drawdowns and long “recouping of losses”, so the disadvantage is volatility and the risk that at an unfavorable moment (e.g. just before the target) the stock portfolio will be deeply in decline. If we look at a very long historical cross-section, global shares gave approx. 5%. annually in real terms (after inflation).
Bonds: portfolio stabilizer, smaller but more predictable profits
Bonds (especially treasury and high-quality bonds) usually do not have as much growth potential as stocks, but they can act as a shock absorber in the portfolio: they earn interest and have historically fluctuated less than the stock market. The downside is that they are sensitive to changes in interest rates (when rates rise, bond prices fall), and with high inflation, real returns can be disappointing.
For the broad investment bond market in the US, the average annual rate of return for several decades was approximately 6-7 percent. (nominal). Realistically it was about 2%.
Cash and money market instruments: nominal security, inflation risk
Deposits, savings accounts and treasury bills tempt with their simplicity and low volatility. Their biggest advantage is liquidity, predictability and a buffer function for unforeseen expenses. The disadvantage is equally obvious: in the long term, the biggest enemy of cash is inflation, because the real rate of return is sometimes close to zero or negative.
Real estate through REITs: exposure to the rental market, but in a stock exchange form
In the long term, real estate is associated with protection against inflation and rental incomebut direct purchase of an apartment means high entry thresholds, transaction costs and low liquidity. REITs (real estate companies paying out a significant part of their profit in dividends) simplify access to: they are bought like shares, easier to diversify and sold faster.
Cons? REITs can behave like stocks (volatility), and are also sensitive to the level of interest rates and the commercial real estate market cycle.. American equity REIT indices were able to have a long-term annualized rate of return of approximately 11%. annually. This is a result comparable to shares, but with significant fluctuations along the way.
Gold: an insurance against uncertainty, but without “interest”
Gold pays no interest or dividends – you only make money when its price rises. On the one hand, this is a disadvantage (lack of income), on the other hand, it is an advantage in the wallet: it is sometimes treated as protection against times of market stress, geopolitical risk and periods of increased inflation.
Historically, according to World Gold Council data, gold since 1971 (since the US left the gold standard) it grew on average by approx. 8%. annually on an annual basis. However, it must be remembered that gold has had long periods of weakness, and its role is more often about diversification than about profit maximization.
Commodities: Diversification and protection in an inflationary cycle, but with a long-term flaw
A wide basket of raw materials (energy, metals, agricultural products) can help when inflation accelerates or when the economy enters the phase of “supply shock”. The disadvantage, however, is cyclicality and the fact that in the long term, raw materials as an asset class do not always build value as consistently as shares (they do not generate cash flows like companies).
For the Bloomberg Commodity Index, data based on history since 1991 suggests a very moderate trend: about 2 percent. annually in the long term. Shorter time windows can look better – for example, in the last 10 years annual rates of return have been reported around several percent per year (depending on methodology and index version).
Important disclaimer: historical rates of return are not a promise of similar returns in the future. It's important to remember that valuations, inflation, interest rates and the structure of the economy change over time.
Note: The information contained in the text is for informational purposes only and does not constitute an investment recommendation, information recommending or suggesting an investment strategy within the meaning of applicable regulations, or any other form of advice regarding the purchase or sale of financial products.
