Benefits of Long Term Investing

The investment horizons could span over short-term and long-term depending on the financial goals and risk appetite of the investors. Long-term investing refers to holding an asset class for a longer span, generally more than three years. Any investment in a scheme or asset class for a period between 1 and 3 years is categorised as short-term investment.

To get the benefits of long-term investing the investors need to prepare a well-planned financial strategy. Let’s delve into how the long-term investing works and benefits of investing your money in such assets.

Why long-term investing works?

It is important to invest money in a strategic way to maximise returns and to achieve your financial goals within the planned investment horizon. In long-term investing, an investor can hold assets such as bonds, shares, monetary instruments and real estate. Generally, under long-term investment strategies the investor does not sell the assets for a longer period. A focus on the future with long-term investing strategy can help to withstand market fluctuations while maximising returns.

Benefits of long-term investments

Here’s a look at some advantages of long-term investments

Capital Gains

Holding an investment for a long period of time can help you in accruing capital gains. Generally, long-term investments have the potential for significant capital appreciation. This type of investment can aid you in achieving your long-term financial goals such as retirement planning.

However, long-term capital gains tax (LTCG) is levied on the returns on such investments and the tax rates may differ depending on the asset class.

Compound interest in long-term investing

Some long-term investments accrue benefit from the compounding interest rates. With a longer time period, the addition of the compound interest accrued can significantly increase the value of the initial investment over time. When a long term investment accrues compound interest, each year the returns on your investment get re-invested.

Risk Management

Generally long-term investment strategies involve diversification. So, an investor deploying a long-term investment strategy will invest money in different assets to reduce risk. Thus, the strategy helps in managing risk while increasing the chances for rewards as you invest across sectors and asset classes.

Flexibility and convenience

Investment strategies which are short-term in nature require you to keenly observe the market or monitor the prices of the investment instrument to maximise your gains by consistently selling the entire or a portion of the assets at highest possible prices. On the other hand, long-term investments provide simple entry and exit points which provide you flexibility and convenience as you do not need to consistently monitor the value of your investments.

Lower investment cost

Each time a transaction is conducted you end up paying trading fees. In short-term investing strategies the more you buy and sell, the higher your trading fees are likely to be. On the other hand, in long-term investing your fees are limited to a low amount as you do not need to frequently conduct buying or selling transactions.

More logical decisions

Investors rely on the expertise of many sources which give out trends and tips, often assets like stocks are also bought if potential return is seen. Thus investors are likely to make emotional decisions regarding buying or selling an asset. In long-term investment, investors hold an asset for a fixed goal instead of making emotional decisions.

Ample time for recovery

A long-term investment strategy gives your assets ample time to recover or bounce back from corrections, as per market conditions. Additionally, investors committed to long-term strategies can capitalise on subsequent market upswings.

Final words

Long term investing is one way of strategising the way you invest for maximum gains. However, there are several important things an investor must know before committing to such an investment. It is crucial to have an understanding of your larger financial goals and extremely necessary to diversify your asset portfolio for mitigating risk. Additionally, investors should always conduct in-depth and thorough research before making any investment decisions.