Time is an investor’s best buddy (or worst foe if you wait too long) because it gives compounding time to work its magic. Compounding is the mathematical procedure where interest on your money in turn earns interest and is added to your principal.
In the long term investment the persons is less affected by short term volatility. The market addresses all changes with the factors that keep changing in short term. So a person involved in a long term investment or trading for instance will not be affected much by short term instability as there are factors such as liquidity, fancy of particular sector or stock which may make the price of a stock over or undervalued. So in long term goods stocks which have been affected due to some other factors will give better that average returns.
He can persistently invest or remain the same till his needs are satisfied as no one can predict the short term. In short term what happens is that greed takes over and thus persons involved suffer losses as he might invest in low quality stocks with short term perspective to make quick money after going behind the herd, which is not the case with long term, where he takes informed decisions and is in quality stocks.
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term. There may also be times when you lose money in short term but as you are in quality stocks and have long perspective of investment you will earn good returns over a period of time.
The investor with a long- term perspective can also correct for mistakes along the way. For example, that stock you thought was going to soar like an eagle turned out to be a turkey. If you have a long-term perspective, you can change investments that aren’t working for other alternatives.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets like the one that began in without dramatically affecting his or her ability to reach their goals.
However, for the investor just starting out at age 55 a market downturn can be disastrous. There is no room for error with only 10 years left before retirement at age 65. The reality of investing is that the market will go up and the market will go down. Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising.