Long-term investment requires patience and a clear strategy. Although many investors and traders opt for short-term investments, especially beginners, long-term investments are also popular and provide many benefits.
Of course, aside from the benefits, both types of investment have their cons. However, in terms of choosing which type best suits you depends on your personal goals, knowledge, and experience in investing.
But if you’re still in the process of choosing how you’ll invest, you should start by knowing the benefits that long-term investment can provide. Below are some of their benefits.
1. Compound Investment Growth
Investing for a long time is like magic. Imagine making money out of the money you’ve earned from your initial investment, wouldn’t you be tempted to continue doing so? This is also called compound growth.
So, the more you stay in the market, the higher the possibility of earning, instead of looking for the right timing, which is done in short-term investment.
For instance, if you’re interested in long-term investment, and you already know how to trade forex, it can be your initial long-term investment. Of course, if you prefer to try it using actual stocks, you can do so, but it’s recommended to try it on something you’re familiar with, like trading.
2. Reduced Losses from Market Volatility
If you invest long-term, there’s no need to feel nervous about the short-term fluctuations. Instead, you need to look at the bigger picture. Besides, at the end of the day, these short-term market fluctuations won’t significantly affect your investment.
Going back to the previous example, if you prefer to learn how to trade forex, and decide to invest long-term, you should adjust your trading graph in a way that you can see the market status per day or weeks, depending on how long you’re planning to trade.
Besides, many investors and traders are aware of the fact that as the market moves forward, it can be observed that short-term fluctuations don’t matter in the long run.
3. Lower Transaction Costs
Short-term trading requires many transactions, which results in higher transaction costs. Besides, every time you buy or sell stocks, there’s an attached transaction cost. On the other hand, in long-term trading, you don’t need to pay additional fees that often. Once you place your trades it may take a while before you need to pay for another transaction cost.
So aside from getting higher profits from the compound growth of your capital, you also get to save more in terms of paying transaction fees.
4. Tax Efficiency
Aside from transaction fees, you can also save on taxes. Usually, governments offer lower tax rates to long-term investors, which means they can keep more of their earnings. The common rule when it comes to long-term investment taxes is that there’s a maximum rate of 20% if an investment has been held for more than a year.
5. Alignment with Financial Goals
If you don’t need the money right away, long-term investment can help you with the alignment of your financial goals. Some of these goals may include retirement, educational funds, and buying a property.
So, the more you invest long-term, the higher the chance of achieving financial goals. It doesn’t have to be the same long-term investment. The more you diversify your investments, like trading, retirement accounts, and stocks, the bigger your future funds may become.
6. Less Emotional Decision-Making
One of the most common challenges investors and traders encounter is making decisions while being emotional. Some experts provide tips, such as pausing for a while and deciding once the emotions are calmed down, sticking to your strategy, and avoiding making impulsive decisions.
Fortunately, in long-term investment or trading, you rarely experience being too emotional due to market fluctuations, and news. As mentioned a while ago, short-term fluctuations don’t significantly affect long-term investments, so focusing on the bigger picture is recommended.
Of course, there are instances when you can still feel the tension and the fear of losing all your hard work, but it doesn’t mean you should make irrational decisions. Besides, more often than not, this irrational decision will just end up being a mistake, instead of saving your investment.
7. Diversification Benefits
Diversification is more doable in long-term investments as you don’t need to pay close attention to every investment. You can start by investing in various markets, and financial instruments. You can choose as many industries, classes, and geographical regions as you like. Of course, when investing, you should consider your capital. If you don’t have enough budget to hold onto different long-term investments, it’s best to start with a couple or a few investments first.
Final Thoughts
Long-term investment comes with various benefits. By keeping them in mind, and considering your current knowledge, experience, and financial status, you can easily make informed decisions about your investment journey.
We hope this article helps you get started with making investment decisions. If you want to share your long-term investment experience, don’t hesitate to comment below!
ABOUT THE AUTHOR
Aliana Baraquio has over 5 years of experience as a writer and market analyst. She specialises in developing beginner-friendly trading techniques and tutorials. Additionally, she suggests FP Markets as the top broker for trading CFDs and Forex.
