Benefits
of Long Term Investment
As
soon as the clock strikes 9.15 am, an intraday trader sets his unflinching gaze at his computer screen. The market movements determine
whether he will have a frown face or a happy face towards the day end. The
reason being, the market is highly
uncertain, volatile and unpredictable. This makes intraday trading a gamble
rather than a good investment. On the other hand, long term investment is safe,
secure and saves you from the day-to-day market
hassles.
Investing for the long term offers countless
benefits that traders who try to time the market or day traders cannot take
advantage of. We at Indira Trade, share with you benefits of long term
investment.
Benefits of Holding Stocks for the Long Term
1. Better Long Term Returns
Long term investments fetch better returns. Stocks outperform over a
period of time giving exorbitant returns to the long term investors as compared
to short term traders. Long term investment overrules short term market
fluctuations and gives study returns. All you have to do is, focus on good
performing companies and see your portfolio grow.
2. Advantage of Compounding
Long term investment allows
you to take the advantage of compounding. Compounding is reinvesting your
profits (i.e.bonus, dividends, etc.) over time to generate even higher
profits. With long term investment, you get an opportunity to roll over the
profits into other promising stocks to fetch you more income. Thus, you are
earning income from the income in the form of compounding.
3. Beat The Market Volatility
Short
term investors and intraday traders wake up at the opening bell every day and
decipher if their portfolio exploded or took a dive overnight. However, long term investors have an upper edge in this
regard. With the long horizon, they automatically discount the short term
hiccups that every stock goes through in its life cycle. Long term investment
yields positive results and clears off
all the road blocks of a short term investment.
4. Lower Capital Gains Tax
Rate
Holding your investment for
long term (i.e. more than a year) saves a
lot on your taxes. A long term investor pays far less tax as compared to an
active trader. Short term traders pay tax at the top marginal tax rate that can be as high as 39.6%. On the other
hand, long term investors are taxed at a maximum rate of
20%.
5. It Takes Emotions Out
of the Equation
People
who deal in the stock market are bound by
emotions. They claim to be long term investors until the market crashes down.
As soon as they see a downfall in the market, they start withdrawing their
money for the fear of additional losses. Little do they realise that they are falling into
the trap of short term market volatility. In such situations, a long term buy and hold strategy saves you from the
volatility and yields far better returns.
6. Savings on
Brokerage and Taxes
When you buy or sell any stock, you have to pay a brokerage plus plenty
of taxes and cesses which are levied on every transaction. Unfortunately, the brokerage cost in India is
very high. Day traders and short term investors have to pay more brokerage as they
indulge in frequent buying and selling of stocks. However, a long term investor
who buys the stock and holds it for a long period refrains from active buying
and selling and thereby saves a lot of money on brokerage, cess and taxes.
With
countless benefits of long term investment, you must also keep in mind that
long term investment brings high risk and offers limited liquidity. But all
said and done, the advantages of long term investments are many and it makes
for a great investment strategy.
Open a Demat account with Indira
Trade and experience hassle-free trading with us.