THE BENEFITS OF LONG-TERM INVESTING IN STOCKS

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Long-term investments in the stock markets are based on two pillars: value buying and diversification. Long-term investing is the investment plan where an investor aims to grow their wealth over a long period of time. By investing in quality stocks, bought at their undervalued prices ahead of potential company, industry and economic growth, long-term investors create wealth for themselves. There are many advantages to investing in the stock markets for the long term, such as: B. compounding of investments, lower taxes, lower risk, etc. However, there are also some disadvantages. For example, you cannot withdraw funds in a negative market, long-term investments are required for compounding, and the lack of tax advantages compared to other government systems. However, the advantages of investing in the stock markets far outweigh the disadvantages and should therefore be considered for long-term investments.
Lower tax rates as compared to short term or intraday investments
If you invest your money in the stock markets for a short period of time, the taxes levied on the gains derived from those investments will be taxed at a higher rate than the taxes levied on long-term capital gains. Here, short-term means any stock sold within one year of purchase, and long-term means gains on stocks sold after a year of purchase. In India, STCG is taxed at 15% while LTCG is taxed at 10%, making long-term investments more tax-advantaged than short-term capital gains.
Override the possibility of negative returns
If you invest money in the stock market for the long term, the possibility of achieving a negative return in a well-diversified portfolio is almost negligible since the general tendency of markets and prices is always upwards. Correction or decline occurs in the market due to certain uncontrolled events working against the companies. However, the stock market in general often digests these events and resumes its upward trajectory. In the long term, with optimal diversification, the probability that your investment will yield a negative return is therefore low. This can be an opportunity for short-term investments or intraday trades, but in the case of long-term investments in the stock market, where the position is held for more than 5 years, there will most likely not be a negative return. Potential for an exponential return.
Contrasted with the possibility of a negative return, long-term investing in the stock market has the potential to bring you exponential gains because stock prices are highly volatile and sentiment sensitive. A good organization that has many things in its favor and has strong fundamentals can see its stock prices soar by multiples in a short period of time and become a unicorn stock in the market. If you invest your money in unicorns like this, there are certainly chances of seeing exponential growth over time.
Lower commissions and overhead expenses
Just like the applicable taxes, the fees you have to pay for a long-term account are significantly less than the fees you have to pay for short-term trading or intraday trading. Many brokers charge a fixed fee for each trade. This is known as discount brokerage, as opposed to traditional brokerage where the brokerage fee was paid as a percentage. So, long-term trades help you save on the extra brokerage fees.

Compounded returns in case of dividend paying stocks
If you've started investing in long-term stocks with significant investment capital, you certainly have some blue-chip stocks or defensive stocks in your portfolio that can help you generate decent interest through dividends, too. If you don't withdraw those dividends and reinvest them in the shares of the blue-chip companies, the accumulated interest generated will accrue interest over time, much like interest accrues in other asset classes such as mutual funds or other government schemes.
Conclusion:All of these benefits of investing in stock markets for the long term make it lucrative for people to invest money in this vehicle. Once you've evaluated the value of a long-term investment and are ready to invest your money in the stock markets for the long-term, you need to move on to the next few steps, which include stock selection and diversification. Without these two factors working in your favor, long-term investing in the stock markets may not produce the desired outcome. A certified and registered investment advisor can guide you on both of the above and ensure your investment plan is well diversified, hedged and includes the right stocks to match your risk appetite. After that, it would just be a matter of regularly monitoring your investments and your money would be working for you!