5 Benefits of Long Term Investments For Financially Sound Future

There are myriad ways to ensure a financially secure future and one can either go for stocks or several investment vehicles or get professional consultation from an advisor. But if you want to make investment that doesn’t give you sleepless nights and ensures decent returns, then long term investment is the perfect solution for a successful retirement.

Short term trading in stocks can help in generating profits but when you opt for long term investment you are definitely choosing wealth creation. The main motto of long term investment is to create and build wealth gradually over an extended time period through selling and purchasing of portfolios of stocks, bonds, mutual funds, etc.

What Is Long Term Investment?

One of the reasons why short term investments look exciting is because they help you pocket a big return when you choose the right fund, bond or stock. After collecting your return, you are left with the capital which may or may not yield incredible returns the next you invest it elsewhere.

Long term investments may not be much exciting in comparison to stocks but they are less risky. When you choose your investment instrument wisely and commit to keep the investment running for long term, then you will definitely find this strategy more yielding.

The benefits of long term investments are numerous and investors can multiply their profits by re-investing them into more shares of stock. Investments can be held for an indefinite time period and while profits can be maximised through re-investment, losses can be eventually recovered even when markets fluctuate. People investing in long term investments are mainly concerned with market fundamentals like management forecasts and price/earning ratios.

Here are 5 benefits of long term investing describing how undeniably smart decision it is to invest in well regulated investment that outpours incredible returns over the time:-

1. Helps You Take Emotion Out Of Equation

No one knows when to cash out and when to hold as markets fluctuate on hourly basis and is completely unpredictable. Since there is no way to predict the right time to cash out by trying to predict the highly volatile market, you get a chance to set an investment goal.

Make it strict that you will either cash out once your investment becomes double or when you want to get married or retired or fund your children’s education or make major purchases. The motto here is to extract emotion out of equation and set a goal as you are making the investment for a long term and it is in short term that market’s rise and fall affects the investment value to a great extent.

2. Make Most Of Compound Interest

One of the most important benefits of long term investments is that you can make substantial money by reaping the advantage of compound interest. If everything goes well with your investment vehicle, you get some amount of return on your initial investment, which is basically free money.

You can just re-invest this money and ensure greater amount of interest for the next year. Each year, if you re-invest the capital plus the interest amount and that too, for a long period of time, you will certainly make more and more money. Time is your greatest friend here and if you keep re-investing into more shares of that stock, you can even get double the investment amount quite quickly than doubling the original investment amount in 10 years.

3. Lower Taxation Amount

Lower taxes are one among the benefits of long term investment that might interest you. If you withdraw your investment after getting retired, then you can avoid a lot of taxation given the fact that your annual income then drops below the high taxation slab.

If you are an active short-term trader who has investments made for 365 days or less, then you will have to pay tax at their top marginal tax rate. On the other hand, the taxes on long term capital gains are relatively less and this is why holding investments for a period of greater than year can save you some serious tax money.

4. Less Risky & Greater Stability

If you are a long term investor, you will definitely enjoy better sleep at night as you don’t have to worry about checking your portfolio thinking whether it took a steep dive or plummeted overnight. When you are investing for a long term in high quality companies whose share value has less volatility rate, you are smartly investing in a stock that is causing you least stress too.

Moreover, if you are an active trader, you will have to burn away loads of cash as commission costs each year. However, with long term investment, you will have to pay commission fees when you add to your positions or get some stock sold.

Coming to the risk quotient, making a long term investment secures you from risk of losing some golden opportunities. In case of short term investors, they just swoop in and out at just the right time, which may result in losing the opportunity to stay in the market during big up days.

5. Provides More Opportunity To Correct Your Investment Mistakes

One of the greatest benefits of long term investments is that anyone can do it. You need to be a stock market expert or a millionaire to pick put a portfolio of a well reputed company and keep it running for a long period of time. With long term investing, you need have the necessity to learn different styles of trading like that of an active trader.

Though everyone can do long term investing, but you may sometimes end up making mistakes. But long term investing gives you the opportunity to rectify your mistakes. You must ensure that you continue to stick with companies who have shown steady growth and even add to companies whose business models are in place but are temporarily facing a setback.

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