Stock Investing: Hold for the Long-Term

There are 2 advantages for holding on to your stocks for the long-term.

Firstly, you save on transaction fees and taxes. Every time you sell your stocks you incur transaction fees and capital gains tax if you made a capital gain on your investment. The fees and taxes eat into your profits.

If you frequently buy and sell stocks, you would be giving away a healthy chunk of profits. If you didn’t sell your stocks you save on the fees and taxes and the savings is locked inside the stock to generate even more returns for you. Compound this over the long-term and you will see the benefits of holding the stock.

Secondly, you minimize the price fluctuation risk. Everyday, the stock prices move up and down for many reasons and sometimes for no reason at all. It is impossible to predict what the stock price will be tomorrow, next week or even next month. If you buy a stock today and aims to sell it in a week, you are taking a huge risk because you don’t even know the market price for your stock 1 week from now.

However, over the long-term, the price of the stock is based on the expected future earnings of the company. And you could fairly assess the future earnings by doing your homework thoroughly.

When you hold for the long-term, you allow time for your stock to recover its losses (if you bought your stock just before the market crashes) and to compound its returns. However, there are certain scenarios when selling the stock is better than holding on to it.

Previous: Steps to Successful Stock Investing.