What are the Long-term Benefits of Investing in Volatile Markets?

The global financial markets are packed with a broad range of asset classes, some of which are considerably more volatile than others.

Take the global forex market, for example, which deals in international currency and recorded a peak daily trading volume of $6.6 trillion in April 2019. This market is characterised by increased levels of volatility and market price movements, creating opportunities for risk-hungry investors to leverage these to their advantage.

But what are the long-term benefits of investing in volatile markets and asset classes of this type? Let’s get into it!

#1. Access Better Long-term Gains

While most strategies aimed at leveraging volatile markets are short-term in nature, it’s fair to surmise that many also offer considerably higher returns over time.

This is probably best embodied by Bitcoin (BTC), with this trailblazing cryptocurrency asset enduring frequent peaks and troughs in line with market speculation and the imposition of regulatory measures in different international jurisdictions.

However, the value of this asset has appreciated markedly over a five-year period, from $2,024.24 per token on June 23rd, 2017, to its most recent valuation of £23,578.21. This distinguishes BTC as a highly volatile asset that appreciates in value over five- and 10-year periods, so buying and holding tokens is highly recommended in this space.

The same principle applies to stocks, which the S&P 500 index returning an impressive average of 11.82% per year between 1928 and 2021. This level of performance is considerably higher than bonds and similar assets, so it’s an important consideration when dealing with volatile assets.

#2. Riding Out the Highs and the Lows

Stocks are particularly volatile assets, which can be accessed through numerous investment vehicles. 

For example, CFDs enable you to speculate on short-term price movements within the market, while buying and holding assets can deliver long-term gains. Click here for more information on CFDs. 

When you buy and hold a stock over the longer-term, you’ll also have the advantage of riding out sudden price fluctuations. Remember, stocks can drop as much as 20% in value during different trading periods (particularly small-cap entities), but this type of asset is also likely to experience marked growth and deliver larger returns in the long-term.

Much will depend on your outlook as a trader, of course, but buying and holding certain stocks over a period of up to 20 years is an excellent strategy for banking viable returns.

#3. Negate the Issue of Timing

When targeting volatile markets with short-term investment vehicles (such as forex scalping), you’re required to undertake huge amounts of research and time your orders precisely.

To achieve this successfully, you’ll need time, understanding and a keen sense of determinism, but even then, market conditions that remain outside of your control can conspire to cause sizable losses.

By targeting specific volatile asset classes with long-term strategies, however, you can simplify the investment process considerably while negating the need to time price movements or market shifts.

Long-term investment also prevents you from being placed at the mercy of emotive decision-making, which typically drives the type of buy high, sell low behaviour that undermines investor returns over time.