Long Term Investing Vs Short Term Trading
One question I’m sure many of us have asked ourselves before at the start of our investment journey is whether we should go long term or short.
There are certainly many arguments for and against on both side of the fences.
To say either one of them is the best solution is definitely being biased. This is because every individual is a unique. The decision to go either way really depends on his investment personality and risk profile.
In fact, even in trading itself, there are people who differentiate between long and short term trading.
While we won’t venture in depth to that, let’s do a heads on analysis between long term investing and short term trading shall we?
Pay attention now….you are about to discover where you stand…
Long Term Investing vs Short Term Trading
Long Term Investing
Pros
- With a longer term horizon, you will be able to reap the magic of compounding effect. The snowballing effect can turn your puny portfolio into a MONSTER!
- When you think long term, you will do fewer trades. Fewer trades = less commission paid.
- You can take advantage of dividends payout.
- Generally, volatility and risk diminish over time. The longer you hold on to your investment, the higher the probability of you earning a profit.
- You need not monitor the price all the time. That’s a big plus. Monitoring is tiring. You can just let it run on autopilot and look in from time to time.
Cons
- Lots of patience required. Sometimes, it may take years to earn a significant gain.
- Test of your emotions. You have to endure the high and lows of price movements which are bound to happen during a long time frame.
- You wouldn’t be able to see immediate profits.
