Getting back to basics and remembering the tortoise.
Long term investing can help you maximize your returns by allowing you to ride the ups and downs of the market. Time is a vital factor and patience is the key. Investing isn't something you should do impulsively.
However, if you decide to enter the investing world, one thing to consider is how long you actually want to invest, and whether you're prepared to be in it for the long haul. As a matter of fact, staying invested for several years could bring in many advantages. Here are five benefits of long-term investing.
It helps to remove emotions from the equation
One of the most important benefits of long term investing is that it almost removes your emotions from the equation. Humans are made of emotions. A market that jumps 10% in a matter of days isn't going to have you sitting on the edge of your seat to sell, and a hiccup in overseas markets that sends stocks down 5% won't send you running for the hills.
The data is on your side
Looking back at stock market returns since the 2000s, individuals have rarely lost money investing in the Nifty50 for a 20-year time period. If you had just invested in the index 20 years back even with all the market crashes you would have made astonishing returns. However, there are risks associated with stocks but if you let your winners ride there’s a good chance that they will cover for the losers and you will see your portfolio grow in value. Especially if you focus on successful businesses.
The power of compounding
Just imagine a snowball rolling down a hill, slowly accumulating in size, Then you are close to understanding how compound returns work. Year after year any gains on your investment get invested again and just like that your money grows with it. As an example, simply gaining a 12% yield will double your money about every 6 years without considering any dividend or stock growth.
You'll pay less in taxes
Another benefit of long term investing is that you'll pay far less in taxes than if you're an active trader. Short-term traders pay tax at their top marginal tax rate. Long-term capital gains taxes are significantly lower. No matter how you look at it, holding your stocks for longer than a year saves you money.
Your investment risk drops
Finally investing for the long term significantly reduces your investment risk by removing lost opportunities. It also helps you to correct your investment mistakes. Trying to time the market could lead you to miss the big up days in the market. The point is that staying invested reduces your risk of missing out on the big gains.
Think of long term investments like the tale of the Tortoise and the Hare. Slow and steady wins the race.
~Sakshi Gulati