Introduction

Everyone might have heard the famous quote “Rome wasn’t built in one day”. Well, this quote applies to other aspects of life too, especially investing.

When it comes to investing, a long-term strategy is what you need to achieve your financial goals. 

For investments to grow in value, time is the key ingredient. By holding stocks for the long-term, you don’t have to worry about short-term market movements.

The definition of long-term is different for different people. Ideally, it’s better if you can stretch your investing timeline as far as possible. 

Let’s look at the benefits of holding stocks for the long-term.

Benefits of holding stocks for the long-term

#1. Higher returns 

When you invest for the long-term, the power of compounding works in your favor and the interim volatility may be evened out.

 It is not always possible to build enormous wealth over a short period. If you want your profits to rise exponentially, you should start investing as early as possible and you must give enough time for your investments to grow.

Long-term investing relies more on patience and is likely to deliver better returns.

#2. Tax advantages

When you hold your stocks for the long-term, you get tax advantages.

At present, you have to pay a tax of 10% on long-term capital gains if you hold your investments for a period of more than one year. As opposed to this, you have to pay a tax of 15% on short-term capital gains if you sell your investments within one year.

So, it makes sense to hold your stocks for long-term whereby you have to pay less tax.

#3. Risk mitigation 

There is risk of capital erosion when you have a short investment horizon due to unfavorable market conditions at present.

However, if you look at the performance of equity market over the years, they have overcome unfavorable tailwinds and macro-economic conditions and have given positive returns to the investors.

No other asset class has given better returns than equities in the long-term.

#4. Builds discipline

You are less likely to make impulsive decisions when you have a long investment horizon.

Investors often miss out on good companies because they are constantly buying and selling different stocks to make profit in the short-term.

Sticking to your investments for a longer period not only brings discipline in your approach but also leads to better results over time.

#5. Requires less effort

When you invest for the long-term, your work is done once you research and invest in a high-quality company that will maintain its competitive advantage in the coming years.

You just have to stay updated with company performance periodically. However, that’s not the case with trading.

If you are into day trading, you would need to put more effort and time as you cannot risk leaving your desk until your position is squared off.

#6. Safeguard your capital 

When you invest in a high-quality stock, you are basically making a investment in a company that is unlikely to go bankrupt in the future.

This will not only ensure safety of capital but also provide excellent returns in the long-term.

#7. Passive income 

When you hold the stocks of any company for a very long time, you become eligible for dividends.

If you are someone who relies on passive income to meet your day-to-day expenses, then investing in high dividend paying stocks would be a great option.

Regular payments of dividends are a great source of passive income for many investors.

#8. Removes short-term volatility

Even if equity market delivers excellent returns in the long-term, it is very volatile in the short-term. The stock market never moves in a single direction without any fluctuations.

These fluctuations often lead to investors taking rash investment decisions. The market may seem to go up and down in the short-term but when you look at the bigger picture, the market trend is always upwards.

You can overcome these fluctuations by holding your stocks for a longer duration.

#9. Less brokerage 

You pay a fee every time you buy or sell a stock. When you trade, you pay transactions charges more frequently. Trying to time the market or actively trade only adds more cost to your portfolio.

This is not the case when you hold investments for the long-term. The longer you hold your investments, the lesser transactions cost you incur. 

You will only pay transactions cost when you buy more or sell and these costs too will be offset by the potential gains from holding the shares for such a long time.

#10. Achieve long-term goals 

If you are saving up for a goal that has a time horizon of 15-20 years, then long-term investment in stocks is the way to go.

The earlier you start; the compounding effect gets larger. You can achieve most of your financial goals like children’s marriage, retirement planning etc by investing in fundamentally strong companies for the long-term.

Doing this will ensure that you end up with a much bigger corpus than expected.

Conclusion

Remember that the benefits of holding for the stocks for the long-term can be significant. 

Investors who are more experienced and have more capital at their disposal can make money using short-term trading techniques. 

But this might not be a feasible option for those who are just starting out or are risk averse.

By holding stocks for the long-term you can ride the highs and lows, benefit from lower tax rates and brokerage.

Remember, in investing, patience is a virtue. So, be a marathon runner and not a sprinter.