If you intend to invest, it helps a lot to research wide to decide which type of long term investment you should go for. During such a moment, you need to take the holistic approach that involves not only looking at the possible returns but also the process, and the impact of the type of investment to your well-being. That’s why long-term investment is better than stressful day trading.
8 Reasons Why Long Term Investment is Better
1. You control your time
The first advantage of long term investment is that you have all the time you need to conduct a portfolio review or even conduct research on a specific company.
You are not in a hurry and hence you seek information from various sources including invaluable online platforms such as Investors Hangout.
That way, you get all the knowledge and information you require before investing your money. This is an advantage when compared to a day trader who has to monitor the market continuously and so they react to the market.
2. The ability to reinvest profits
When you buy stocks for the long term, you get the advantage of compounding or reinvesting your profits which gives you the benefit of generating even more enormous profits with time.
Reinvesting your profits while still in your youth could double your money at retirement. That’s the beauty of reinvesting your profits over the long term.
3. It’s easy to do
As a long term investor, you won’t be trading daily. Hence you need not study different styles of trading or even know the various trading platforms.
All you need is to take your time, research, study, and pick a portfolio of well-managed businesses and hang on to them for the long.
Also unlike a day trader, you won’t have to wake up early to find out whether your portfolio exploded or took a dive overnight. Most probably, the companies you invest in are stable and so their volatility is relatively low.
4. You have the chance to correct your mistakes
Since you are investing in the long, you have the opportunity of investing in companies that have only shown the propensity for growth. You can correct your investing mistakes. With day trading, there’s no time to fix any of your mistakes.
5. Investing is less risky
Day trading carries a lot of risks. That’s why day traders employ strategies that use leverage to make the trade profitable.
Indeed, day traders are known sometimes to lose more than what they have in the bank. A day trader has to determine which way a currency/commodity/or stock is going to move during a day.
Remember, if you are not right, you’ll require a 100% gain on the next one to break back even. That’s is not the case with long term investing since you do not depend on leverage; hence you can only lose what you have invested.
6. There are no commissions
Long term investing does not involve paying commissions or brokerage fees daily. You only pay commissions when you transact.
Day traders, on the other hand, make multiple trades each day and so they pay huge brokerage fees annually. Hence commissions costs play a significant role in a day traders strategy while it’s an afterthought for the long term investor.
7. Tax advantages
Investing in the long-term has a lot of advantages as regards tax. It provides tax advantages on capital gains. You will be taxed at a rate that is below your income tax bracket.
However, when you are a day trader, the short term gains are usually taxed as regular income.
As a long term trader, you have a lot of your time since you don’t have to follow the market constantly. You can use the time saved to do other productive activities.
On the other hand, a day trader is wholly encumbered with trading; hence they can’t get any time to engage in any other activity.
Every type of trading involves risks and disadvantages regardless of whether its day trading or long term investment. However, the risks and disadvantages of day trading outweigh those of long term investment.
Day trading is stressful, has high transactional costs, you pay high taxes, and does not provide you the opportunity to fix your mistakes.
Author: Charles Watley