5.25Why do people invest for 5, 10 or 20 years?
1What is it?
Long horizons let compounding work, smooth out short-term volatility and match real goals like a child’s education or retirement.
2Why does it exist?
Over 1 year, stock returns are very unpredictable. Over 10–20 years, the range of outcomes historically narrowed and the chance of loss fell (though it is never zero).
3Diagram
1 year
Anything can happen: −30% to +50% years have occurred.
5 years
Bad years are often balanced by good ones.
10–20 years
Business growth tends to dominate; compounding is strongest.
4Quick revision
- Long horizons smooth volatility.
- Match investments to real goals.
- Short-term money should not be in shares.
5Knowledge check
Q1. Should money needed in 1 year be in shares?Show answer
No, too risky.
Q2. Why do long horizons reduce risk?Show answer
Bad years can be offset by good years and business growth.
Q3. Is a loss impossible over 10 years?Show answer
No, it’s less likely but possible.