9 Reasons the Long Term Matters More Than the Short Term in Investing
Like many people you undoubtedly hear and read a variety of investment mantras. One of the most common of these likely is that when investing, long term investing matters more than the short term. Although you may hear and read this with regularity, you may never have really obtained a complete explanation as to why this is the case. All that changes today. There are nine key reasons why the long term matters over the short term when it comes to your investment success. You will want to save these benefits for future reference.
Long Term Investing Takes Emotions Out of the Equation
By making a long term commitment to your investments, you are far less likely to make decisions based on your emotional reaction to any number of factors. For example, if the stock market has a significant upward surge, you (usually) won’t respond emotionally and stewing about whether or when to sell. Similarly, if the market dips a bit, you won’t be in a panic. Investing for the long term places in you in a position to make educated and not emotional decisions about where and how your money is invested.
History Confirms You’re Likely to Profit Over the Long Term
Stock market research and analysis confirm that those people who invest with eye to the long term are likely to profit in the process. Yes, not all stocks succeed. But if you hold (or buy more), during a short-term correction, your investment returns will smooth out over time.
Compounding Over Time Works to Your Advantage
Another reason why investing for the long term matter is that you can benefit from compounding. Reinvesting your profits over time can provide you with truly beneficial results. Even a middling return of 3 percent will double the size of your investment over 24 years.
Long Term Investing is Relatively Easy
There is nothing overly complicated about investing for the long term. Invest in index funds and hold. Review your goals annually and rebalance at that time. You don’t have to be a market or investment expert to profit from a long term strategy.
You Avoid Undue Stress
If you follow a strategy that focuses on trying to maximize returns in the short term, you likely will experience a tremendous amount of stress. By taking the long term approach, you eliminate what can be a considerable amount of potential stress associated with short term investment strategies.
Invest Mistakes can Better be Corrected
Investing is never foolproof. One of the reasons a long term investment strategy is preferable to a short term alternative is because it permits you time to correct market issues and even mistakes. Basically, a long term investment scheme that extends over years is far more forgiving than one that has months as milestones.
Lower Tax Liability
Holding on to a stock investment saves you money when it comes to your tax liability. By holding onto stock for over a year, the capital gain associated with that investment becomes a long term capital gain taxed at a lower rate than would be the case if you only held the security for less than a year.
Commissions Become Less of a Concern
Individuals who focus on short term investment strategies spend a considerable amount of money on commissions. This is because they tend to trade with what is considerable frequency. When you invest for the long term, you do not trade often and you pay less in commissions.
Overall Drop in Investment Risk
One benefit of investing for the long term is a reduction in overall investment risk. As mentioned previously, long term investing aids you in smoothing out drops in the market. Also, when you buy and hold, you take advantage of short term gains in the market. You may miss out on them if you constantly try and time the market.
Over time, the benefits associated with long term investing outweigh those fewer gains associated with a short term strategy. This strategy, sprinkled with professional advice, enhances your likelihood of enjoying overall investment success.