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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.

 

Short Term Trading

Pros

• You can see almost instant returns when you take profit early
• You don’t leave money on the table - after all there is real actual money in the pocket. If you hold on for long period, the gains accumulated can be wiped out suddenly in a market plunge

 

Cons

• If the company you are vested in is fundamentally strong with a strong upside potential, you will lose out on big potential gains if you were to cash out too early
• More commission costs incurred
• You will have to spend more time monitoring price. Could it better spent elsewhere? Like with your family?

 

Which Way Will You Go?

 

On the surface it may look as if trading is not as advantageous as investment. It really cannot be further from the truth.

We just need to look at George Soros as an example of a trader-speculator that came away with spectacular success.

Sometimes speculation based on calculated risk and sound analysis can be exciting yet rewarding.

You may go long or short. That’s totally fine, so long as

• The system you go with fits your personality and risk profile
• You have a sound risk management plan
• You keep the discipline in sticking with the plan

With that said, we don’t believe in going long or short exclusively.

Market is dynamic. We can be flexible. We can engage in both long term investing and short term trading if the market condition is suitable and the right kind of stock is available.

 

Play It Smart,

Jag Foo

Chief Editor

StocksForGrads.com

This article is available as a PDF Download

“Long Term Investing Vs Short Term Trading” PDF Download

 

tag:George Soros Investing Basics Long Term Investment Short Term Trading Speculation stock investment Warran Buffett

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