There are numerous benefits of long term investment. Long term investment in the stock market can yield good returns. The strategy of long term investment involves making a diversified portfolio of the stocks.Long term investments require a lot of patience. However, the result of patience is in the form of high returns.Therefore, it won’t be wrong to say that investing for the long term in stock markets is the wisest thing to do.
Long Term Investment Option In India
The benefit of long term investment is not only to help the investor in making money but also in putting their savings in the right direction. Such investments are income for the future. They provide the freedom to an individual to live life without any financial worries.They provide an individual the financial independence which is very important at a later stage of life. Thus,there are several benefits that are associated with long term investment. In this article, we shall look at few of the benefits of long term investment.
Benefits of Long Term Investment:
1. Better Returns
It is a well-known fact that long term investments give good returns. If any comparisons are made with short term investments, the long term investments will be a better choice by a big margin. To put in another way, long term investments give the invested money the necessary time to multiply itself. Also, with long term investment, the investors have the opportunity of participating in the upward journey of the stock. The short term investors often miss such journeys and they have no option but to regret.
2. Lower Taxes
Another benefit of long term investment is lower taxes. An investor who sells stocks after holding for more than 12 months will have to pay lesser taxes. The tax rate is nil to low on long term capital gain on stock markets. But the tax rates on short term capital gain are higher. Therefore, to avail the benefit of lower tax bracket on the gains made in the stock market, long term investment is the right choice.
3. Overcome Volatility
It is not a hidden fact that stock markets are volatile. Often, such volatility traps the investors leading huge losses. To overcome such losses, long term investment is the best solution. Long term investment saves the investors from taking hasty decisions during any panic in the markets. This protects the buyer from incurring unnecessary losses due to extreme volatility in the market. To conclude, long term investment saves the investors from the knee-jerk reaction of the markets to any news or due to any other reasons.
4. Lower Transaction Cost
The cost of the transaction is lower in long term investments. Short term transactions involve multiple transactions, leading to higher brokerage and compliance cost. Also, short term investment gains are often nullified by the high transaction cost. On the other hand, the long term investments have minimum number of transactions. This makes the transaction cost very low. Therefore, in long term investment higher gains can be made even at a lower transaction cost.
5. Power of Compounding In Long Term Investment
Many people are often complaining that long term investments take a long time to make money in the stock markets. But, one needs to understand that money can not be earned immediately in any field or sector. If long term charts of the markets or stocks are looked into, the results are astonishing. The stocks multiply up to 100 to 500 % or more in long term horizon. To put in another way, the stock market has the power of compounding. It encourages the investor to invest for longer term horizon where the portfolio value can grow consistently over the years.
Making a long term investment portfolio is very convenient. It takes a lesser amount of time for its creation. The management and evaluation are also relatively easier. Long term investors need not worry about the effects of regular volatile movements of the markets. Instead, they can just relax and monitor the portfolio on a timely basis. To conclude, the major difference between a long term and short term investor is that, long term investor is proactive while on the other hand, short term investor is reactive.
7. Learn and Recover From Mistakes
The chances of earning high returns are there in long term investments because it gives the investor the time to learn and recover from mistakes. A bad investment decision can be rectified by withdrawing money from that investment and putting it in the right stock. Continue monitoring of the portfolio will make the investor realize what better things can be done to make the portfolio attractive. Therefore, long term investments provide multiple opportunities to an investor to make higher returns in the markets by correcting the mistakes.
The investments held for longer term horizon will give much more returns than those held for a shorter term.These are just a few of the benefits of long-term investments. If these are not enough to convince you, read ahead some famous quotes of Warren Buffet.
These quotes clearly convey his investment horizon. He is an advocate of long-term investing. Long term investments can yield high returns if they are done systematically. So start long term investing to reap long term benefits.
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