Long term investing: why staying invested matters

As an investor, you may often wonder whether to stay invested in your chosen assets - stocks, shares, property - or to sell up and move into cash. History and decades of investing experience show that staying invested over the long term tends to deliver the best outcomes.

Legendary investors like Warren Buffett and Jack Bogle emphasise the power of compounding and consistent investing, noting that patience and discipline usually outperform attempts to time the market.

By keeping your money invested and letting returns generate their own returns, you give your wealth the best chance to grow steadily over time. In this article, we explore why staying invested works and how compounding especially can make a meaningful difference to your long-term financial success. 

What is compound interest?

Compound interest is when your investment earns returns not just on the money you put in, but also on the returns it has already generated.

Even modest returns can snowball over time. This means that the earlier you invest and the longer you stay invested, the greater the potential for your wealth to increase, as your returns begin to generate their own returns.

However, compounding in investing goes beyond simple interest, it includes reinvested dividends, interest payments and gains from the increase in asset values. Like a snowball rolling downhill, returns can gradually build momentum, growing faster and larger the longer they remain invested.

Time is the critical ingredient. The longer your money stays invested, the more opportunities it has to generate returns on top of returns. This ‘growth on growth’ effect is why staying invested over the long term can have a far greater impact on your wealth than holding cash or trying to time the market and why patience and consistency are key to long-term investment success. 

Invest for the long term – growth potential

One of the most compelling reasons to stay invested is the long-term growth potential of assets. Historically, stocks and other investment vehicles have consistently outpaced the rate of inflation and provided substantial returns over extended periods. By staying invested, you can harness the power of compound interest, giving your investments the potential to grow exponentially over the long term.

For example, if you had invested in the Canaccord Genuity Risk Profile 3 (RP3) strategy on 31 January 2016 your investment would have returned 48.34% up to 31 January 2026.  This return has significantly outpaced inflation and, even more dramatically, the performance of cash (19.5%), as can be seen in the graph below. 

Real value of cash vs. Canaccord's RPs 3, 4, 5, 6
Source: Sterling Overnight Index Average (SONIA), Canaccord Wealth.

Is attempting to time the market pointless?

Trying to time the market by moving to cash during downturns and re-entering during upswings is a strategy fraught with challenges. Even the best-seasoned professionals struggle to make consistently accurate market timing decisions.

The emotional rollercoaster of trying to predict market movements often leads to poor outcomes, as investors may sell during a dip only to miss out on subsequent gains, or stay in cash during a rising bull market, missing out on profits.

The adage ‘time in the market, not timing the market’  encapsulates the importance of staying invested. Investors who maintain their positions through market fluctuations are better positioned to capture the long-term growth trends.

Missing even a small number of the market’s strongest recovery days can materially reduce long-term returns and those recovery days often occur when sentiment feels at its worst.

Diversification reduces risk

We also believe that diversification is a cornerstone of prudent investing. By spreading investments across various asset classes, sectors and themes, we can reduce the risk associated with market segments.

Diversified portfolios tend to have a smoother performance trajectory, as gains in some assets can offset losses in others. This risk-mitigating effect becomes especially valuable during economic downturns, when specific sectors may underperform.

Diversification is not about avoiding volatility altogether, it is about building resilience so that investors can remain invested through it.

Why holding too much cash can be a bad thing 

Cash may feel safe, but it carries a silent risk: inflation steadily reduces its real value over time. Even when savings rates appear competitive, they often fail to keep pace with rising prices, meaning the purchasing power of your money gradually declines.

Inflation has long been described as a hidden tax. It rarely causes immediate alarm, but over time it can significantly erode wealth. Left in cash for too long, savings can lose meaningful real value, particularly during periods of elevated government debt and inflationary pressure.

That’s why we focus on building diversified portfolios designed not just to grow, but to grow ahead of inflation. This includes:

•    Global equities with pricing power
•    Inflation-linked bonds
•    Short-dated credit
•    Commodities and gold
•    Carefully selected alternative strategies.

While cash has an important role for short-term needs and liquidity, long-term wealth is better protected by remaining invested in assets designed to outpace inflation, allowing compounding to work in your favour rather than against you.

The psychological benefits of investing for the long term

Investing can be an emotionally taxing experience, especially during periods of market turbulence. Staying invested helps investors overcome the common behavioural biases, such as fear and greed, that can lead to poor investment decisions. A well-structured investment strategy with a focus on long-term goals can help investors weather market storms with confidence.

At Canaccord Wealth, we publish multiple benchmarks (relative comparison indexes as well as our peer group returns). We also encourage clients with a tailored solution and/or an adviser to stay in contact for regular updates and portfolio discussions. We believe it’s essential to create informed investors by educating our clients.

Taxes and long-term investing

Taxes can significantly impact your investment returns. When you sell assets, you may incur capital gains taxes, which can erode a significant portion of your profits. By staying invested and deferring the realisation of capital gains, you can potentially reduce your tax liabilities.

Other investments, such as the UK gilts (government bonds) position we hold for many clients, can benefit from beneficial tax treatment. Although our chosen investment’s anticipated return is just under 3.5%, the equivalent return required for a higher-rate taxpayer would be north of around 6%.  

Economic recovery and growth

Historically, financial markets have demonstrated resilience and the ability to rebound from economic downturns. While market crashes and recessions are inevitable, they are typically followed by periods of recovery and growth. Staying invested allows you to participate in the economic rebound and benefit from the potential upside.

The chart below shows how a long-term fully invested portfolio (the yellow line) has performed since the millennium, when compared with an ‘emotional’ strategy (the red line), where the investor has switched to cash when they are worried about falling markets.

Staying invested vs. switching to cash 
Sources: Bloomberg and Canaccord Wealth