Trader logo

Benefits of Long Term Investment in the Stock Market

Investing in stocks isn't easy. That's why you should learn the best benefits of long term investment and become the Gordan Gekko you always wanted to be.

By Jesse KinneyPublished 6 years ago 5 min read

Make no mistake, the stock market is a complex, intricate place that is incredibly difficult to master. However, if you're able to learn the ins and the outs of it, and gain experience investing and trading in stocks, you can make a fortune in a very simple and straightforward manner. If you've done your research, you know there are two methods for investing: short and long-term. Both strategies have their shortcomings and advantages, but overall, there are a lot more benefits of long term investment than short-term.

It's easier than ever.

Thanks to the internet, smartphones, and apps, almost everything these days is easier to do. Obviously, this includes investing. If you're an experienced investor, you can look into the best apps for day traders for easier and more efficient trading. For those who fall under the newbie category of investing, no problem, simply check out the best apps for first-time investors. Whatever your level of experience is, there is an app that can help you invest in the stock market as painlessly as possible.

You'll save money come tax time.

Yes, that's right. Not only will long-term investment earn money for you, it will decrease what you owe as well. Two benefits of long term investment with one stone! Long story short, if you buy and sell a security under a calendar year, it is counted as regular income.

This translates to, in the worst case, a tax rate of 39.6 percent. The highest securities/stocks can be taxed, if they're held for longer than a year, is 20 percent. Depending on your tax bracket, that could be much lower. You can even end up pay nothing in taxes if you fall in a low enough tax bracket. That's a sizable tax advantage that you can use to help your wallet.

It's less risky than short-term investing.

It's easy, less expensive tax-wise, and less risky? Yes, to all three. Jumping in and out of the market quickly and investing, in the same manner, is much riskier than sitting back and dealing with the highs and lows of the stock market with a relaxed perspective. The fancy word that investors use for these situations is volatility, which is defined as:

The liability to change rapidly and unpredictably, especially for the worse.

That doesn't inspire much confidence, does it? A lot of short-term stocks have high volatility levels, leading to a higher reward, but a much higher risk as well. Not everyone is Warren Buffett, and many lose a lot by trying to be. Stay on the safe side and look into stocks for long-term investment.

It'll spare you from too much stress.

It is less risky than short-term investments and it is less damaging to your health. If you're planning to hold onto your investments for a long period of time, then rapid and unexpected fluctuations do not affect you too much.

However, short-term investments cause traders to constantly check and worry about the potential volatility of their stocks. There are numerous illnesses caused by stress and short-term investing can be one of the most stress-inducing activities you could find. It's no surprise that the habits of successful and happy investors include the benefits of long term investment.

Commissions are much lower.

If you work with a broker instead of using an app, they charge a commission fee for any security/stock you buy. Day trades have to deal with those much more often than long-term investors. Think about it, you won't be buying too many stocks if you're purchasing for the future benefits and rewards. So the commissions required by the stockbroker you work with will cost and bother you considerably less.

History is on your side.

Historically, long-term investors have had a much higher rate of success than short-term investors. This ties in with all the other benefits of long term investment, as it proves that it really works and it is the better alternative. It's just common sense.

More investors crash and burn trying to "beat the system" and implementing get rich quick schemes than those with patience and a keen eye. As mentioned earlier, short-term investors deal with higher volatility models and higher risk, so if you want to be Gordan Gekko, be my guest, but it is much more dangerous than you think.

It helps diversify your portfolio.

Having several diverse stocks in your portfolio for the long-term will ensure it stays profitable and positive. The oldest advice in the investing world, besides buy low and sell high, is to make sure you have a diverse portfolio.

Having a foot in vastly different companies and industries gives you insurance that if one of your securities fails due to an industry-wide lull or hit, you and your money will be protected. Long-term stocks and securities will ensure your portfolio stays diverse and your money sheltered.

Dividends will continue to multiply.

If you're looking into the which long-term stocks to buy and hold onto, check to see which ones give the highest dividends. Dividends are usually cash payments given to investors every quarter by the company. This keeps shareholders happy while at the same time incentivizing other investors to give money and reap the rewards.

One of the more profitable benefits of long term investment is a continuous supply of dividend payments. If you do your research and find the best dividend-paying stocks and decide to follow my sage advice to invest long-term, you'll be swamped in profits.

Compounding becomes your friend.

Once the dividends continually pile up, you can do whatever you want with them. I would personally recommend investing them back into the stock that produced them. Reinvesting back into a dividend-creating stock can have serious benefits in the long-run. It will increase your investment (obviously) and over time, and create a much stronger position for you. That leads to a much larger sum whenever you decide to sell.

It will save you from rash decisions.

We're all guilty of them. Everyone can name a moment where they made a rash decision and later regretted it. If you're normal, you can probably name countless more. One of the benefits of long term investment is that it saves you... from yourself.

Since you've already committed to the long-term investment strategy, you will avoid making any quick-trigger decisions and ultimately, mistakes. It locks you into your decisions to stop you from getting in your own way, and we could all use more of that in our lives.


About the Creator

Jesse Kinney

Huge sports fan, primarily hockey and football. Also a big TV and movie fan. Recent Marist graduate writing about whatever interests me!

Reader insights

Be the first to share your insights about this piece.

How does it work?

Add your insights


There are no comments for this story

Be the first to respond and start the conversation.

Sign in to comment

    Find us on social media

    Miscellaneous links

    • Explore
    • Contact
    • Privacy Policy
    • Terms of Use
    • Support

    © 2023 Creatd, Inc. All Rights Reserved.