When it comes to investing, there are numerous paths one can take. Long term investing in stocks is one of the best ways to invest in creating wealth.
Intraday traders try to time the market and catch the highs and lows. While they might taste some success in their initial trades, in the long run, the disadvantages of intraday trading far outnumber its benefits by a huge margin. On the other hand, long term investment in stocks offers countless advantages that intraday traders simply can't take advantage of. Here are a few reasons why long term investing in stocks is much better than intraday trading.
Long term investment in stocks does not involve emotional investing decisions
Long term investing in stocks completely does away with emotions in investing. This is because when you have a clear long term investment mindset, you will not be excited to sell stocks when you see a jump of 10% or even panic and exit when markets are crashing due to some international issues like Brexit or rising oil prices for example. By remaining invested in long term you are simply giving enough time to the business to grow and realize its actual potential because no business can grow overnight.
Compounding works in your favour with long term investing in stocks
Long term investing in stocks enables you to take advantage of compounding as well the ability to reinvest your dividends over time which will enable you to generate even bigger profits. When you invest for long term, time is your greatest benefactor.
Take HDFC Bank stock, for example, one of the greatest wealth compounders in Indian stock markets. If one had bought 100 shares of its stock on 2nd Jan 2001 for Rs. 22.44 and held on to it till today, the price will have gone up to Rs. 1216 per share. That’s a whopping gain of 5310.22% in 19 years. That means the initial investment of only Rs. 2244 in the year 2001 would have grown to Rs. 121,600 simply by buying and holding the stock of HDFC Bank. That’s the power of compounding.
Long term investing in stocks is stress-free
Intraday and short term trading are highly stressful. Intraday traders are constantly hooked to their computers or mobile phones so that they don’t miss out on opportunities. This highly impacts their other activities and day to day work causing high levels of stress. On the contrary, long term investing in stocks means one does not have to wake up at the opening bell every day to check whether your portfolio is going up or down. Investing in good quality businesses is a definite way to keep your portfolio volatility low, which in-turn makes investing a stress-free experience.
Long term investing in stocks enables you to save more on taxes and commissions
Active trading involves frequent buying and selling of stocks which means not just higher brokerage costs, but also higher taxes as short term capital gains are chargeable at a higher rate than long term capital gains applicable on selling stocks after holding them for a period of 1 year or more.