6 Benefits of long-term investing
When it comes to an investment strategy, there are an almost endless number of paths you can take. Depending on your overall priorities, needs, and values you can follow any established formula or set your own path.
One path that has numerous benefits is long-term investing. In long-term investing you put your money in an investment with the goal of leaving it there for a long time. You’re not buying and selling your stocks quickly based on the whim of the market or trying to take advantage of opportunities. Instead, your money sits in the investment and grows over a long period.
Here are 6 benefits to long-term investing.
1. It’s less emotional
It’s easy to get worked up about every high and low in the stock market and worry that you should be moving your money around to take advantage of each trend. When you invest long-term, you don’t have to think about those things. You don’t worry if stock prices drop a small amount in the short term because you’re focused on the future. With a long-term investment, you’re more concerned with the viability of a company’s business model or its overall growth strategy, rather than whether a bump in an overseas market causes a one-day drop in value.
2. Your portfolio will almost certainly gain value
Over the long term, portfolios tend to grow in value. If you buy and sell based on dips in the market, you could bet right that the stock will or won’t increase in value again, but you could also be wrong. If you stick with your stocks that tend to increase in value and hold onto them even over small drops, chances are they’ll readjust and continue to increase in value.
3. Lower tax liability
Short-term traders, who have their investments for 365 days or fewer, pay higher taxes. Long-term capital gains taxes tend to be lower. If you invest long term, you’ll likely be paying less in taxes than active traders. That’s more money in your pocket, or at least in your account.
4. You’ll pay less in commissions
Active trading can quickly allow commission fees to add up, especially if you’re a day trader. As a result, you could pay thousands of dollars in commissions each year. If you invest long-term, you may pay a small commission fee a few times a year, but your gains will more than likely cancel out those costs very quickly.
5. You can compound your earnings
Long-term investments enable you to compound or reinvest your profits over time, which can give you even higher returns on your investment.
6. Anyone can do it
When you invest short-term you have to take advantage of economic conditions and make–or sell–the right investments at the right time. That takes knowledge and in-depth planning.
When you invest long-term, you can invest in a few companies and carry on with your life. You don’t need to be constantly checking the stock market to figure out what you need to buy or sell on a daily basis, and you don’t have to understand a lot about the market or have extraordinary insights. All you need is patience.
There are countless strategies out there that you can use to invest your money, but the one that provides you with the least stress and requires the lowest amount of expertise is long-term investing.