What is 'Long-Term' anyway?

The phrase 'long-term' can mean a variety of things depending on the context. A long-term romantic relationship can mean a year, while long-term for a nation could mean a couple centuries.  

In investing, long-term is generally considered to be more than ten years.  During periods of ten years or more, the volatility that we see in equity investing begins to settle out and we see far more moderate returns.  Here are the five-year returns of the S&P 500 index:

And here are the ten-year returns of the same index:

From these two charts, we see that as the investment term grows longer, the historical range of returns becomes more predictable. Especially for stocks. Note a great number of the ten-year returns fall between 5-15%, while a far smaller percentage of the five-year returns fall in the same range. This means - year after year -  longer time horizons yield more stable, predictable outcomes.

In determining what your time horizon is, there is a pretty simple way to conceptualize it. Your current age (say 35) subtracted from your age when you begin spending the investment (say 65) is your time horizon (30 years). If your time horizon is ten years or more, you are investing for the long-term.