Benefits of Long-Term Investments

Long-term investing involves holding on to stocks for a year or longer. In this article, we will go over the benefits of long-term investments.

Avoid Poor Market Timing

Most investors are emotional, and this negatively affects the performance of your stock portfolio. The biggest mistakes that people make are selling during low times in the hopes of preventing future loss. Often investors fail to reinvest in time and jump back in when most of the gains have been realized. It is important to remember that upsets in the market are usually short-lived and will often rebound. This is one of the benefits of long-term investing. Taking out emotions and following the buy and hold strategy will often result in better returns than trying to time trades with market changes.

Riding Out Changes

Generally speaking, holding on to your investments long-term and riding out market highs and lows will generate a better return. For example, S&P 500 has rarely lost investor money during a 20-year period since 1920. It is important to note that past results do not guarantee future returns. However, by and large, long-term investing yields positive results.

Lower Tax Rates

Profits from the sales of stocks are subject to capital gains tax. If you sell your stocks within one year of purchase, you are subject to short term capital gains tax. This is the same rate as your ordinary income and can lead to taxation of up to 37%. On the other hand, if you hold stocks for more than a year, they are subject to long-term capital gains tax. This tax is 0%, 15%, or 20% based on your adjusted gross income and tax filing status.

Lower Fees

Usually, your custodian charges fees for the buying and selling of stocks. Constant, short-term trading can lead to the accrual of large fees. Alternatively, if you follow a long-term investment strategy, you avoid racking up all those fees.

Utilizing Dividend Producing Stocks

Dividends are corporate profits that are shared with stockholders. This is usually done on a quarterly basis. By holding on to stocks you can take advantage of receiving more dividends. This adds value to your portfolio, especially if you reinvest your dividends. Dividends compound over time, which increases your value in the long run.

Long-Term Investing

The benefits of long-term investing can help you greatly increase the value of your portfolio. An investment advisor can help you set up a portfolio that will work well within a long time horizon.

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