If you’re looking at the new year coming in upon you with some dread, I get it. It’s been a very difficult last few years, and most of us have stocks and investments that remain down. But if you’re hoarding cash instead, that isn’t the way to go either.
That’s why today I’m going to focus on long-term investing, and why now is the time to get into it. Honestly, that’s because it’s always a good time to get into long-term investing. So, let’s look at why it works, with proof to match.
Why it works
Long-term investing comes from the notion that over time, the market goes up. It’s the strategy some of the best and biggest investors use, including people like Warren Buffett. By doing your research and finding companies that have already proven to trade at higher and higher values over the last years and decades, you can find your own long-term portfolio to create as well.
The key here is instead of going towards growth stocks, you want to use your savings and cash designated for reinvestment. This will provide you with even more income over the long run, and less risk as well.
Think about it. You could see shares surge from a growth stock. They could suddenly grow 30% overnight. But they could also fall by that amount with the more attention they get. Meanwhile, you could be bringing in that safe income instead by just waiting a bit longer. So, let’s look at an example.
First example
Let’s say you’re getting into investment in consumer staples, a market that remains strong today and should continue to be strong coming out of an economic downturn. A company I would certainly consider then is Dollarama (TSX:DOL).
Dollarama stock has a long history of growth, and continues to trade at high levels as we exit 2023. It’s managed to continue that growth conservatively, expanding through store openings but also through acquisitions over the last few years.
So, let’s compare Dollarama stock to another retail stock like Aritzia (TSX:ATZ), which saw huge growth during the pandemic. Aritzia stock surged to $60 per share, coming on the market in 2017. Yet today, those shares have fallen back dramatically by more than half to about $25 per share as of writing.
Meanwhile, Dollarama stock has decades of experience behind it, climbing at a steady clip in that time. Since 2017, shares are up 213%. That’s compared to Aritzia’s 47%. It’s clear who the winner is here.
Second example
Now, let’s look at another area of the market, such as finance stocks. This can be tricky, because finance stocks tend to drop heavily during a downturn. However, find the right stocks, and you can see these turn around quickly, such as with the Big Six banks.
For example, let’s look at Royal Bank of Canada (TSX:RY) versus Manulife Financial (TSX:MFC). Royal Bank stock continues to trade down thanks to higher interest rates creating loan losses, and inflation meaning more people aren’t looking to take out loans as well. Meanwhile, Manulife stock has been climbing in the last while, with the stock seeing more people look for asset management in a downturn.
However, Manulife stock has gone up and down over the years, absolutely plummeting during the pandemic and Great Recession. Royal Bank stock, meanwhile, came right back up to 52-week highs within a year of hitting 52-week lows.
Again, let’s look at the last decade’s performance. Royal Bank stock is up by 112% in that time. Meanwhile, Manulife stock is up 85% in that time, and it’s been far more of a bumpy road.
Bottom line
There you have it. These are just two examples that show that just because a stock is jumping doesn’t mean you should get into it in the long term. Instead, look for those that have already proven worthy, and stick it out. They’ll pay you handsomely for it.
