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Long-Term vs Short-Term Investing: Find Your Winning Strategy
If you want to create wealth, you should start investing from today itself. There is no specific age to start investing. Now the biggest question that arises here is whether to invest money in the short term or long term.
Look, both long-term and short-term have their advantages and disadvantages. It is your job to ensure what your financial goals are, what your risk-taking capacity is, and how long you can stay invested in the market.
You have to ask yourself the answers to all these questions
In this article, we will understand in very simple language, which is better for the long term and the short term.
I hope that after reading this article, you will be able to decide which is the right approach to investment for you.
What is Long-Term Investing?
In long-term investing, you buy the stock once and forget about it. The long-term investing perspective is about 5 years or more.
It has been seen many times that people invest once and maintain that investment for their entire life so that it can be useful for future generations.
What are the benefits of long-term investing?
Compounding Returns
In long-term investment, you do not withdraw money, rather the increased money keeps getting reinvested. This is called compounding returns. You must have heard the saying ‘making money from money’, this saying fits perfectly on the stock market and investment.
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| Compounding Returns |
Lower Taxes
In long-term investment, you pay less tax than in short-term investing. In long-term investing, the tax is 10% while in short-term, the tax is 15%.
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| Lower Taxes |
Reduced stress
In long-term investing, you do not need to watch the market daily. Check your portfolio 1 or 2 times a month, if you want to reshuffle the stocks, do it, otherwise let your investment continue like this.
Lower transaction costs
In long-term investment, there are hardly 5 to 10 trades in the whole month, which means that the fewer the trades, the lesser the burden of brokerage and the lesser the burden of STT tax and other taxes on you.
Weathering Volatility
The other name of the stock market is volatility. The market fluctuates so much every day that not everyone can bear this volatility.
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| Stock Market Volatility |
That is why many people prefer to invest money for the long term so that they do not have to worry about the daily fluctuations of the market.
What are the Disadvantages of long-term investing?
Patience required
In long-term investment, money does not double overnight. To double or triple the money, you have to have patience in the market.
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| long-term investment, diversify a portfolio |
If you think that I will invest money in the market today and it will start growing from the same day, this will not happen. You have to stay invested in the market with patience.
Limited Liquidity
One of the disadvantages of long-term investing is that your money gets stuck for a very long time.
You cannot use this money for other purposes, and if you withdraw this money, then how will wealth be created? Therefore, you have to keep extra cash in your hand for other purposes.
The impact of economic and political activities happening around the world
In long-term investment, you can avoid daily fluctuations but those activities that have a big impact on the market like Covid-19, the Russia-Ukraine war, the Israel-Hamas war, and Trump’s attack, all have a long-term impact on the market and your investment cannot escape these fluctuations.
But if you have chosen good and strong companies, then you do not need to worry.
What is short-term investing?
Short-term investing is trading whose aim is to earn a quick profit. It is not necessary to wait for a long time in any trade. If you get a good profit in a short time, then you can book your profit.
There are many types of trading. Like intraday trading, scalping trading, swing trading, and positional trading.
Today 90% of people like to do trading because everyone wants to make quick money. But quick money is not made just like that, one needs to have a skill for that. We will talk about it further in the article.
What are the benefits of short-term investment?
Quick Returns
As I said, money is made instantly in this, sometimes in 5 minutes, sometimes in 1 hour, sometimes in 2 days, and sometimes in 2 weeks.
It also depends on your skills whether you do a good analysis and can hold for maximum profit.
Constant Engagement with the Market
You remain constantly connected with the market. You remain updated with the news about what is happening in the country and the world, and what impact the news has on which stock. Every day you get new opportunities to earn profit.
Money doesn’t get stuck
You took 1 trade, earned a profit, withdrew the money, and then took another trade. In this way, you can easily take 2 to 3 trades in a day.
There is a lot of liquidity in trading
Today most of the longs are involved in trading. Every day lakhs of crores of rupees are traded. You can easily buy or sell shares.
What are the Disadvantages of short-term investment?
Higher Taxes
The more trades you take, the more brokerage you will have to pay and the more taxes you will have to pay. 15% tax is levied on short-term investments
Risk is higher in short-term investing
The trade you take doesn’t need to give you profit; you can also incur a loss. You will have to improve your skills a lot if you want to improve the accuracy of earning profit.
In short-term investing, the fluctuations become very fast, due to which a trader has to make decisions very quickly. Decisions taken in a hurry often turn out to be wrong
Short-term investing is time-consuming
A lot of your time is spent analyzing the market and doing research.
If you want to earn profit every day, then you have to find new opportunities, and for that, you have to stay connected with the market continuously.
The Differences Between Long-Term and Short-Term Investing
| Aspect | Long-Term Investing | Short-Term Investing |
|---|---|---|
| Time Horizon | 5+ years | Less than 1 year |
| Risk Level | Lower | Higher |
| Tax Implications | Lower tax rates on gains | Higher tax rates on gains |
| Effort Required | Low | High |
| Liquidity | Lower | Higher |
| Goal | Wealth accumulation | Quick profits |
Which is better: long-term or short-term investing?
The answer depends on your financial goals, risk tolerance, and investment knowledge:
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| Which is Better? Long-Term vs Short-Term Investing |
You choose long-term investing if: –
- You want to create your wealth without taking more risk
- You don’t have much time to watch the market every day
- If you can keep money in the market for a long time, you may not need much money for other purposes
- You can read the financial reports of companies
Choose Short-Term Investing If: –
- Short-term investing is a game of high risk and high return. Choose short-term investing only if you can take more risk. Otherwise, long-term investing is better for you
- Long-term investing is a full-time job; you cannot move your screen even for one second. The price changes every second, and short-term traders do this work only to make more profit in less time. If you have full time to give to the market, then only choose short-term investing.
- If you have a specific goal set that you want to earn this much in a day or a week, then only choose short-term investing. Don’t work by shooting arrows in the dark. Work by keeping a specific goal in front of you.
FAQs About Long-Term vs Short-Term Investing
1. Can I do both long-term and short-term investing?
Yes, many investors use a hybrid approach. They allocate a portion of their portfolio to long-term investments (e.g., index funds, real estate) and another portion to short-term opportunities (e.g., stocks, cryptocurrencies).
2. Which is safer: long-term or short-term investing?
Long-term investing is generally safer because it allows you to ride out market volatility. Short-term investing is riskier due to market fluctuations and the need for precise timing.
3. How do taxes differ between long-term and short-term investing?
In most countries, long-term capital gains are taxed at a lower rate than short-term gains. For example, in the U.S., long-term gains are taxed at 0%, 15%, or 20%, depending on your income, while short-term gains are taxed as ordinary income.
4. What are the best investments for long-term growth?
Some of the best long-term investments include:
Index funds (e.g., S&P 500)
Blue-chip stocks
real estate
Retirement accounts (e.g., 401(k), IRA)
5. What are the best strategies for short-term investing?
Popular short-term investing strategies include:
day trading
swing trading
options trading
Scalping Trading
Cryptocurrency trading
Positional Trading
Conclusion
You have learned the advantages and disadvantages of long-term investing and short-term investing. Choose your strategy based on your financial goals, risk taking capacity, and investment holding capacity. In both strategies, discipline, staying updated at all times, and focus on your goals are important.
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| Start Your Investment Journey Today |
Before taking any decision, consult your financial advisor. Whichever strategy you choose, just keep in mind that your future remains financially strong.
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