When you invest in stocks for the long-term, it primarily means that you hold on to the investment for a longer period of time (often for many years).
Investing for the long term offers a number of advantages. In this blog we will discuss about few advantages for long-term investing.
You will pay far less in taxes on your long term holdings. For short term investments, you have to pay higher tax on your capital gains than on long term capital gains. For example, If you hold a share for less than a year, you have to pay 15% tax on your gains whereas, if you hold a share for more than a year then you have to pay 10% tax on your capital gains. The percentages may change as per government policies. No matter how the tax percentage changes, short term tax will be higher than long term, so holding your stocks for longer than a year saves you money.
As long as your investment continues to pay interest, you will continue to earn money, you can keep smiling at night, because you know that time is your best friend. Long-term investment will allow you to sleep better at night. You won't have to wake up every day and put all your energy, time and resources to find opportunities of trading. In short term, stocks will be volatile and driven by news rather than their fundamentals. As a long-term investor, you don’t need to bother about short term volatility.
Real wealth gets created when you hold stocks for long term. Compounding works to your advantage. When you hold stocks for the long term, it allows you to take advantage of compounding. Companies reinvest profits in their business over time to generate even greater profit potential. Time is your greatest friend as an investor. It’s much easier and safer to just let compounding work for you in your wealth creation journey.
As per many surveys and independent researches, more than 90% of the people lose their money in share market. These are mostly intraday traders, Future/Options Traders or Short Term Investors. If you hold your shares for longer time horizon, you automatically reduce your risk of losing money. Historically, if you align your portfolio for the long term, you're more likely to make money. Stocks can only fall to 0, but they can grow infinitely, so, if you let your winners ride, there's a good chance that over the long run you will be successful.
One of the greatest advantages of long-term investing is that it almost entirely removes your emotions from the equation. If you are long-term investor, you don’t need to track share prices on daily basis which will minimize costly emotional mistakes. You don’t need to worry about timing the markets. Just, stay invested irrespective of the market conditions.
One of the greatest aspects of long-term investing is that anyone can do it. You don’t require any specific technical skill to analyze and study market trends. Long-term investing requires skills to identify good and reliable stocks and hold onto them. There are many options available for Long-Term Investors (Index Funds, Mutual Funds and ETFs) which don’t require any skill.
When you're an active trader, Brokers’ fees can play a big role in your trading strategy. It is very common for traders to pay huge commission every year on their trades. Over the long term, these seemingly small expenses could add up and hence, these could add to your potential for your wealth creation as a long-term investor.