When it comes to investing, patience is the key. You must train yourself hard to not react to the daily noises and stay focussed on your goals. However, once you master the art of self-control in making financial decisions and back your long-term investments with conviction, you can almost rest assured of reaping handsome rewards in the long run.
Advantages of Long-Term Investments in Savings Plans
Developing Financial Discipline
Investing a specific portion of your monthly earnings into a long-term investment plan helps you develop financial discipline. Over time, you control your urges to spend on unnecessary items and stay focussed on your investment goals. You also learn to manage your finances prudently.
Power of Compounding
Compounding works wonders for growing your wealth exponentially. It simply means investing the interest back into the principal amount and repeating it every year.
The power of compounding can be illustrated with a simple example. Suppose you have invested ₹5 lakhs in an investment product that earns an annual interest of 7%. At this rate of interest, your maturity amount will be as follows:
|Maturity amount (in ₹)
The above table shows that the maturity amount starts snowballing in the later years.
This is because you gave ample opportunity for your investments to grow by staying invested for a longer period. As a result, your wealth starts compounding faster as your investment period increases. Therefore, long-term investing is the best way to experience the magic of compounding in your investment portfolio.
Moreover, compounding your wealth is one of the surest ways to beat inflation in the long run.
Risk-averse investors can consider investing in non-linked savings plans that are not affected by the market volatilities. Additionally, guaranteed savings plans also provide life coverage with fixed benefits irrespective of market conditions.
Keeping Investments Untouched
Many a time, we tend to delve into our savings whenever faced with a scarcity of money. Frequently disturbing your savings doesn’t go well with wealth creation. On the contrary, long-term savings plans encourage you to leave your investments untouched which aids the growth of your investments.
Additionally, refrain from making frequent changes to your savings as well. It’s often enough to keep track of your investments regularly.
While there is little doubt about getting better returns from long-term investment plans, it is better to remember the age-old advice of diversification. Don’t put all your savings in one plan, irrespective of how good the plan is. Instead, diversify your investments in various long-term savings plans, stay put for ten to twenty years or even longer and see how your wealth grows as you approach your retirement age.
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