It is always a good idea to keep any investment for a longer term. Basically because if investments are kept for a longer period of time, they give you an opportunity to study the characteristics of that investment vehicle. Investments are considered to be long term when they are held from anytime over a year. Long Term investments help you decide easily when it’s a good idea to buy or to sell. Long term investments require discipline and patience.
Some long term benefits of stocks include that investors get to experience the highs and lows of investment. Stocks have been known to be profitable over a long period of time. Investors have also seen a value drop over a short period of time. Keeping it long term gives an investor an opportunity to experience both scenarios and the investor gets to make strategic, well-thought out decisions as regards buying and selling. Keeping a stock investment gives an investor an opportunity to see the fallen stock rise.
According to Investopedia, dividends are corporate profits distributed by companies with a track record of success. These tend to be blue chips or defensive stocks. Defensive stocks are companies that do well regardless of how the economy performs or when the stock market drops.
These companies pay regular dividends — usually every quarter — to eligible shareholders, which means that you get to share in their success. While it may be tempting to cash them out, there’s a very good reason why you should reinvest the dividends into the companies that actually pay them.
If you own any bonds or mutual funds, you’ll know about how compound interest affects your investments. Compound interest is any interest calculated on the principal balance of your stock portfolio and any earlier interest you earned. This means that any interest (or dividends) that your stock portfolio accumulates compounds over time, thereby increasing the amount of your account in the long run.
According to Calcxml, putting your money in long-term rather than short-term investments also provides tax advantages on capital gains. Often long-term gains (those held over 12 months) are taxed at rates below your income tax bracket. Short-term gains, on the other hand, are taxed as regular income.
Long-term investing might also save you other expenses, such as transaction costs from active trading. Certain mutual funds may defer sales charges if you hold your shares for a long period.
Long term stock investments can also enable you to benefit from compounding your profits and reinvesting them.
Long term stock investment prevents you from being stuck to your seat every time the market value of an investment drops. You’re able to get more sleep and worry less because your investment is there for the long run.