Why you should think long-term when investing

Putting money away into a savings account means gains are guaranteed. But it can also mean investment returns are minimised.

| More on:
A man walks up three brick pillars to a dollar sign.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

"How many millionaires do you know who have become wealthy by investing in a savings account ?" – Robert G Allen. 

 

Putting money away into a savings account means gains are guaranteed. But it can also mean investment returns are minimised.

Interest rates are at all-time lows so returns on savings accounts are minimal. A savings account is a good place for an emergency fund, but it won't provide an outsize potential upside.

That's where share market investing comes in. But share market investing is not a short-term game. It can take time to grow your portfolio. And thanks to the impact of compounding returns, growth can be impressive. 

Think the long game

One key to successful investing is to allow returns to compound over time. This means reinvesting the money that you earn on your investments. If you gain interest on a savings account, you leave that interest in the account and start earning interest on your interest.

With ASX shares, you can reinvest dividends into more ASX shares. This means over time, as your returns earn returns, the overall size of your investment can grow exponentially. The key thing to note is that the impact of compound returns increases over time. 

This means that you have to be willing to be patient when investing. It can take time for investments to pay off, and some may fail. This is why it is important to spread investments across a variety of ASX shares (and other asset types, if applicable).

Doing this is known as diversifying. Many investors spread their investments across dividend shares such as Coles Group Ltd (ASX: COL) or BHP Group Ltd (ASX: BHP), as well as growth shares such as Afterpay Ltd (ASX: APT). Because you can't predict the future, diversification means that you don't have all your eggs in one basket. 

Short-term pain for long-term gain

Compounding works to magnify returns on investment as interest is earned on interest. Over time this can have a significant impact on portfolio value.

By re-investing your investment earnings instead of spending them, you can start to build a larger overall portfolio. This may be painful in the short-term, but it can pay off in the long term with bigger overall returns.

That's why it pays to think long-term when investing. 

Should you invest $1,000 in S&P/ASX 200 right now?

Before you buy S&P/ASX 200 shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and S&P/ASX 200 wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Kate O'Brien owns shares of BHP Billiton Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price
Share Gainers

These were the best-performing ASX 200 shares in April

These shares were in fine form in April. Let's see why they outperformed.

Read more »

a man puts his hand on the nose of a bull in a lovely green rural setting with the bull raising his nose to meet the man's touch.
Opinions

Why this ASX 300 share looks like a fantastic buy right now

This stock looks like an excellent investment right now.

Read more »

Teamwork, planning and meeting with doctors and laptop for medical, review and healthcare. Medicine, technology and internet with group of people for collaboration, diversity and support in hospital
Share Market News

Which ASX200 health insurance stock does Macquarie tip to underperform?

A big change in market conditions could mean its time to consider taking profits of this health insurance stock. 

Read more »

A male ASX 200 broker wearing a blue shirt and black tie holds one hand to his chin with the other arm crossed across his body as he watches stock prices on a digital screen while deep in thought
Share Market News

5 things to watch on the ASX 200 on Thursday

Here's what to expect on the Australian share market today.

Read more »

Two female executives looking at a clipboard together.
Opinions

3 ASX share investing lessons from April

April was just one month, but there are multiple lessons from it.

Read more »

An unhappy man in a suit sits at his desk with his arms crossed staring at his laptop screen as the PointsBet share price falls
Share Market News

Will lower interest rates hurt Computershare shares?

With many tipping an RBA rate cut, how will it impact this industrials share? 

Read more »

Happy young couple saving money in piggy bank.
Broker Notes

Invest $500 in these top ASX shares in May

Analysts think these shares could be in the buy zone for the month ahead.

Read more »

Hiker man backpacker with hands up in the summer mountains with cloudy sky.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX made it three from three.

Read more »