Can you guess what’s common among Warren Buffet, Charlie Munger, Peter Lynch and Benjamin Graham? All of them are successful investors who built fortunes from their long term investment in stock market.
It is an established fact that long term investment in equities is one of the best way to create wealth. Yet investors often choose short term investments because they fail to understand the demerits of it. Most retail investors fall for the lure of quick money through short term trading. But rather than making quick money, investors even end up losing their capital invested.
Here are some of the top reasons why long term investment scores high over short term investment.
Long term investment does away with emotions in investing
Long term investment removes the possibilities of emotion based buying and selling decisions which are a huge deterrent to wealth creation. Long term investment decisions are driven by rationale rather than emotions.
In long term investment, compounding works to your advantage
Long term investment allows you to take advantage of compounding by reinvesting the dividends received over time to generate even greater profit potential.
Long term investment is quite simple and easy to do
Short term investment requires active participation of the investor for executing the trades as well as keeping a constant track on the stock price ticker, news and factors affecting stock prices. On the contrary, long term investment does not require active participation of the investor. All the investor needs to do is invest in some good quality stocks and wait patiently.
Long term investment is stress and tension free
As the stock markets and stock prices are highly volatile in the short term, it can give lot of stress and tension to the investor. Many short term investors are prone to stress related ailments such hypertension and even cardiac arrests. In effort to keep a constant watch on the stock prices, many short term investors comprise on their routine activities in daily life. Long term investment is stress free as investor need not worry about daily fluctuation in share prices.
Your tax liability goes down in long term investment
Equity investments held for a period of less than 12 months attracts Short Term Capital Gain tax (STCG) whereas equity investments held for more than 12 months attract Long Term Capital Gain tax (LTCG).
Short Term Capital Gain tax (STCG) are taxable at a higher rate than Long Term Capital Gain tax (LTCG) and as a result it decreases the overall the profit from your investment.
Long term investment is cost effective
Frequent buying or selling transactions in short term investment are subject to brokerage charges and Securities Transaction Tax. This increase your overall costs and reduces your profits. When you make long term investment, you can save on these recurring costs.
To summarize long term investment offers many benefits which an investor can never get in short term investment. The best part about long term investment is the peace of mind which comes with it.