Article Categories
» Arts & Entertainment
» Automotive
» Business
» Careers & Jobs
» Education & Reference
» Finance
» Food & Drink
» Health & Fitness
» Home & Family
» Internet & Online Businesses
» Miscellaneous
» Self Improvement
» Shopping
» Society & News
» Sports & Recreation
» Technology
» Travel & Leisure
» Writing & Speaking

  Listed Article

  Category: Articles » Finance » Investing » Article
 

Advantages of Long Term Investing and Compounding Interest




By Ohad Livne

There are generally two types of investors- those who attempt to time the market, predict stock prices, and make money quickly; and those who build long-term, diversified portfolios based on solid companies. There are many advantages of long term investing of which short term investors will miss.

One of the biggest advantages of long term investing is that while you may not be able to predict the market accurately in the short term, in the long term it is much easier. The history of the market, while allowing for short term dips and corrections, has historically gone up over time. By investing and holding on to stocks for longer periods of time, the chances of having growth is much greater.

Another advantage of long term investing when compared to short term, is cost. Each time an investor buys or sells a stock, there is a cost involved with regard to commissions and transaction fees. Long term investors, by definition, make fewer trades, and therefore incur fewer costs. Short term investors can easily rack up large trade costs when making frequent trades. Each time cost is incurred, profits are lost.

A third advantage of long term investing is with regard to taxation. For any account that is not a tax-sheltered account, such as IRA's, profits are subject to taxation. Profits in the stock market are subject to capital gains taxes. For short term investors, if a stock has been owned for less than a year, the capital gains taxes are equivalent to the person's regular tax bracket for the year. That may be as high as 35%. For long term investors, however, the advantage of holding a stock for a long period means that there is no taxation until the profits are realized; and once the stock has been sold, as long as it has been held for over a year, the profits are subject to a long-term capital gains tax, which is either 10 or 15%, depending on the investor's tax bracket.

A final distinct advantage of long term investing is the effect of compounding. Because many stocks, particularly the type often purchased for holding in long term portfolios, pay dividends, compounding is a great advantage for long term portfolio growth. As savvy investors know, compounding means not only do you earn interest on your money, you earn interest on your interest.

For stockholders, that translates to earning dividends in addition to capital appreciation. They can either accumulate dividend payments into interest paying accounts, or simply reinvest the dividends back into the stock, ending up with more shares and more dividends.

There are numerous advantages to long term investing. The last, and possibly most important to some investors, is the reduced risk that is incurred with the purchase of stocks for the long term. While short term buyers may lose money quickly, by holding on to quality companies for long periods of time, the risk of losing money is greatly reduced.



Find more FREE information about investing:
http://www.Value-Investing-Center.com
 
 
About the Author
In Value-Investing-Center we believe in sharing responsible investing education to people who wants to learn.

Article Source: http://www.simplysearch4it.com/article/49541.html
 
If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/49541.html" as shown above and make it hyperlinked.



  
  Recent Articles
Making an offer on an Irish Property
by Clint Jhonson

How To Search California State Tax Lien Records
by Zach Parker

Buying a House at Auction is Very Good Investment
by Kotia Kot

The Future of Gaming is here, why the Video Game industry is reaching new highs.
by Jonel Cordero

All The Relevant Details About Remortgage Quotes Uk
by Turk Malloy

How Investment Property Helps You Retire Early
by Marian Rozwenc, PhD

How To Overcome The Hidden Perils Of Discount Online Stock Trading
by David Jenyns

Advantages of Long Term Investing and Compounding Interest
by Ohad Livne

When And When Not To Use A Stop
by Larry Potter

Passive Investing - How To Grow $250.00 to $250,000.00
by Gil Washington

Notary surety bonds – preventing failure
by rick martin

Online Trading India - Investment at Kotak Securities!
by Tanya Lobo

Shanghi Shows Signs of Gold Boom in 2007
by John Christensen

Why Covered Call Traders Lose Money
by Mat Merten

Covered Call Trading Exit Strategies – the Pain of STOP Orders
by Mat Merten

"Gold, a Hedge Against the Perils of Uncertain Times."
by John Christensen

Three reasons to love uranium ...
by Sean Brodrick

Finance Your Movie In The Game.
by Soma

Can't connect to database