eToro highlights importance of loyalty in investing
eToro highlights risks of short-term investments
According to a new analysis conducted by eToro, a leading global social investing platform, loyalty plays a crucial role in investing.
The company examined historical market data to demonstrate how long-term commitment can significantly impact investment outcomes.
Long-term investing: A winning strategy?
According to the study, holding the S&P 500 index for one year provides a 72% probability of profit. However, if an investor holds the asset for 10 years, the probability increases to 87%, and for 20 years, it rises to 95%.
A similar trend is observed with the FTSE 100, where the probability of positive returns grows from 66% for one year to 83% for 20 years.
However, not all investments reward patience. The STOXX 600, a European stock index, shows a 66% probability of positive returns for one year, but this figure drops to 61% over 10 years and declines further to 47% over 20 years. This suggests that not all indices are equally beneficial for long-term investing.
Commitment vs. short-term gains
Lale Akoner, Global Markets Analyst at eToro, explains:
“Investing, like relationships, has its ups and downs, so it’s important not to panic and sell at the first sign of trouble. Our analysis of S&P and FTSE data shows that the chances of a profitable outcome increase significantly when investors remain committed for longer periods.”
Stocks that rewarded loyal investors
eToro also analyzed individual stocks that have delivered high long-term returns, despite periods of high volatility. Companies such as Broadcom, Arista Networks, and Taiwan Semiconductor Manufacturing Company (TSMC) experienced price crashes of up to 60%, yet ultimately rebounded and posted significant gains. For example, Broadcom lost 53% in early 2020, but its stock has since surged by 1,450%.
On the other hand, some short-term investment trends led to substantial losses. Stocks like Zoom, Peloton, and Docusign experienced explosive growth during the pandemic but later plummeted. Peloton, for instance, skyrocketed 870%, only to crash by 98%, leaving many investors with significant losses.
Key takeaways for investors
eToro’s findings emphasize that patience and strategy are essential in investing. While some stocks and indices reward long-term holding, others require a more tactical approach. Investors are advised to carefully assess their financial goals before making investment decisions to build a stable and resilient portfolio.
Notably, eToro recently expanded its investment services in the UK by launching a new DIY Individual Savings Account (ISA), allowing investors to manage their own portfolios.
