Last Updated on 10 February, 2024 by Abrahamtolle

Everyone understands that you need to own stocks over many years to make money. How long do you need to hold a broad portfolio of stocks before selling with a profit? How likely is it that you make a positive return over x years? If the S&P 500 is any guide, you need at least 20 years to be 100% sure.

Most people can get a good return over many decades by simply buying and holding mutual funds that follow the main market indices. You don’t need to be smart or intelligent. The simpler you do it, the more likely you are to do well. The most important element is time spent in the market.

Unfortunately, the market goes up and down. Mr. Market is manic-depressive: Sometimes asset prices go down, but fortunately, the market has over time risen in value. Most asset managers state you need at least 5 years to reap the reward compared to the risk. Most managers measure risk in terms of volatility and swings in the market.

Why is it important to understand volatility?

Volatility is important. Suppose you bought the S&P 500 at the bottom in early 2003 and needed to sell it in October 2008. Because of the sudden drop in prices, which we call volatility, you had to sell with just a tiny gain, compared to a much better gain just a few months before. This is the risk you face in the markets.

How long does it take to get profit from stocks?

If the history is any guide, the graph below might help you:

Conclusion:

It’s very hard to beat the market by frequent buying and selling. Instead, you are more likely to become a successful investor by buying and holding a broad basket of mutual funds.

How long do you need to own a broad mutual fund to make a profit? The longer you hold them, the more likely you are to profit. One year has a 68% chance of profit, while 10 years has an 88% probability. If history is any guide, you need at least 20 years to be sure of a profit.

Disclaimer: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinion – they are not suggestions to buy or sell any securities. 

FAQ:

– Why is long-term investing recommended for making money in the stock market?

Long-term investing is recommended because it allows investors to ride out market fluctuations and benefit from the overall upward trend of the market over time. The likelihood of making a positive return increases with the duration of holding stocks.

– How long should I hold a broad portfolio of stocks before selling for a profit?

According to historical data, holding a broad portfolio of stocks for at least 20 years provides a high probability of making a profit. The S&P 500 is often used as a guide, and extended holding periods enhance the likelihood of positive returns.

– Is intelligence or market knowledge necessary for successful investing?

No, intelligence or extensive market knowledge is not a prerequisite for successful investing, especially with a long-term strategy. The simplicity of buying and holding mutual funds reduces the need for constant market monitoring and decision-making.