Buying stocks long term — The benefits of long term investing. 5 clear and immediate benefits over trading frequently. I am not a licensed investment advisor and this post is not investment advice. This article may contain affiliate links.
It can be tempting to trade a stock after you have watched its ups and downs for a while.
In hindsight, it seems easy to make money by quickly trading in and out of stocks.
However, most people are better off buying stocks long term.
In this article, I will look at the benefits of long term investing.
Let’s get started.
Buying Stocks Long Term — Is It Good To Hold Stocks For Long Term?
Yes, buying stocks long term is a good idea.
Frankly, unless you are a professional trader, and even they are questionable, it’s better to hold stocks long term than attempt to trade them.
If you Google search “what percentage of traders lose money,” you will find that it is estimated that roughly 70% to 95% of traders lose money.
Let’s dive into the benefits of buying stocks long term.
5 Clear Benefits To Buying Stocks Long Term
1. Less Commission Fees
The most obvious and immediate benefit of holding stocks for the long term is that it will lead to less commission fees.
Instead of paying excessive commission fees for frequently trading, you can pay zero commission by holding stocks long term.
Depending on who your brokerage is and how frequently you trade, you could be saving hundreds, if not thousands of dollars per year.
In turn, less commission fees means your investment returns will be higher.
Related: Zero Commission Stock Trading Canada – My Goal To Be Commission Free In 2022
2. Cut Out Emotional Trading
FOMO or fear of losing your money lead to a lot of bad trades.
But if you commit to a buy and hold for the long term strategy, you can take the emotional component out of investing.
Of course, you will have to ride the ups and downs of the market. But if you commit to holding stocks for 10 to 20 years, and if you choose the right stocks, your portfolio will do just fine.
3. Avoid Capital Gains Tax
Another significant benefit of buying stocks long term is the avoidance of capital gains tax.
If you sell stocks outside of tax-free investment accounts, you will end up paying capital gains tax.
However, if you simply hold the stock, you do not have to pay capital gains tax.
4. More Time For Assets To Compound
When you hold stocks for the long term, they have more time to compound.
The company has more time to grow its earnings, and there is more time for dividends to be reinvested.
Furthermore, there is more time for the company to raise its dividend.
It’s a slow process at first. But ten to twenty years down the road, a quality stock will probably be worth double and it will pay a substantially higher dividend relative to the original cost.
5. Long Term Holding Saves Time
In addition to the other four benefits mentioned, holding stocks long term saves our most valuable resource of all — time.
It takes time and effort to day trade stocks.
You have to research and prepare for trading, wake up early, and deal with the stress of trading.
Personally, I’d much rather collect dividends and allow the growth of the business compound my money.
Can You Hold Stocks Forever?
Of course you can hold stocks forever.
Ideally, you do want to hold stocks forever. That can lead to generational wealth. It avoids commission fees, capital gains tax, and it provides time for the stock to compound.
“Our favourite holding period is forever.” — Warren Buffett
The problem is finding stocks that are worth holding forever.
Which Stocks Should You Buy For The Long Term?
Finding stocks to buy for the long term is where the process gets tricker.
Because it’s not as simple as just buying any stock and holding it forever and never looking at it again.
You have to rigorously analyze stocks to find the right one, and analyze earnings, the balance sheet, and the business annually to know if it is worth keeping.
Ideally, stocks for the long term have strong businesses with economic moats. The business should be a business that will be relevant in 10 to 20 years. It should be growing earnings and have a strong balance sheet. Also, it’s wise to purchase a stock at a reasonable valuation.
If you a dividend income investor, it’s important to look at the history of the dividend payment and payout ratio as well.
Related: Top 10 Stocks For 2022 – A Mix Of Quality Dividend & Growth Stocks
Buying Stocks Long Term — Final Thoughts
In my humble opinion, holding stocks is the superior option to build wealth.
Of course, I am not suggesting that trading is impossible or that some people are not successful at it. According to the numbers, 5% to 30% are successful at short term investing.
If I ever become intrigued by trading again, it would be with a small amount of money that I could afford to lose. Also, I would consider it as gambling for fun.
In the mean time, I will continue buying stocks long term and growing my dividend income.
Similar Articles On Investing In Stocks To Check Out
Zero Commission Stock Trading Canada – My Goal To Be Commission Free In 2022
Keys To Investing In The Stock Market
Top 10 Stocks For 2022 – A Mix Of Quality Dividend & Growth Stocks
I am not a licensed investment or tax adviser. All opinions are my own. This post may contain advertisements by Monumetric. This post may also contain internal links, affiliate links to BizBudding, Amazon, Bluehost, and Questrade, links to trusted external sites, and links to RTC social media accounts.
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