Long-term Investing or Short-term Investing

Is Long-term Investing or Short-term Investing Suitable for Growth Investing?

Investing is one of the means that people use to make money and accumulate more capital for further investments. The stock market is a typical vehicle that people use to earn massive returns on their investment, but it can also pose challenges that may lead to loss of vast sums of money by an investor. When many investors consider the stock market, they think fast-paced selling and buying of stocks to make swift profits. Even though moving stocks to make profits in the short-run is an approach to investing, it is not the only method. Long-term investing is another approach to investing where an investor moves stocks to generate profits in the long-run. Many investors face a dilemma on the appropriate approach to stock investing. However, for investors seeking to grow their shares, the latter is suitable as it offers sufficient time to understand the stock market. Moreover, it allows the investor to focus on stock value, move stocks on the sides in case of unexpected changes, earn capital gains and tax advantages, and maximize returns.

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One of the reasons why long term investing is suitable for growth investing because it allows an investor to become familiar with the stock market and make informed decisions. The stock market is characterized by both predictable and unpredictable risks, which makes it vital for an investor to make careful deliberations when investing. For instance, accounting fraud is a foreseeable threat may have adverse effects on the behaviour of stock traders, a majority of directly exposed investors usually cash out almost 10.7 per cent of their aggregate holdings comparative to their indirectly affected counterparts (Sane). Since long-run stock investing allows an investor contemplate on the prevailing market conditions, it limits the risk of losing significant amounts of money in an instant as in short-term trading. According to Sraeders, a long-term investor has typically more time to examine the stock market. For instance, the stock prices decline, the investor waits until the stock prices rise. Besides, stock investing is a risk when moving stocks, as the market can become unpredictable with changes in stock prices thus an investor needs to analyze possible risks in the market before making any decision to move stocks (Sraeders).

In this regard, Ngoc argues long-term investing allows an investor to overcome the lows and highs in the stock market because it acknowledges that an investor is usually a miserable market timer (Ngoc 4). An inherent fault in the behaviour of an investor is the predisposition to become emotional. Majority of investors often falsely claim they invest in the long-term until the stock market starts falling or crashing, which leads many to withdraw investments to avoid additional loses. However, timing is vital in growth investing because patience ensures that an investor buys high and sells high, which provides guaranteed returns. It is usual for stocks prices to decline by 10 or 20 per cent in value in the short-term, but this is not a significant concern for a long-term investor because they overcome lows and highs in the stock market (Lowrey). In the long-run, an investor has an opportunity to restrain from losing money by investing at the right opportunity.

Apart from ensuring an investor has a proper understanding of the stock market when making investment decisions, long-term investing is suitable for growth investing stocks with potential. A value-oriented investor usually depends on market trends and about patterns and movements when making investment decisions since they are dependent on the slightest changes in stock prices. Growth investing focuses on the value of a stock revealed by the potential to grow and expand in the future. As a result, a long-term investor focuses on stocks they are convinced will grow in the next decade or more (The Guardian). Netflix is an excellent example of long term investing. In the past ten years, the stock prices of the company have grown by at least 4,100 per cent, which is 21 times higher than the S&P 500’s 190 per cent growth in stock prices (Cohan). Currently, Netflix has the highest stock prices in the market, which illustrates that positivity and faith are critical in both growth and value investing. Still, the former emphasizes these considerations more than the latter.

Long-term investing is also vital for growth investing. After all, it allows an investor to buy and sell shares on the side because it needs less focus and work. Even though many stocks are value-based, but this is a significant weakness as short-term stock traders depend on a single income source, which is the stock market (Seetharaman et al. 154).  They do not have to remain keen on current market trends on a routine basis because they focus on long-term return instead of instant cash. However, anxiety faces a short-term investor more than a long-term investor, as slight changes in the stock market may cause the former to lose vast sums of money while the latter make enormous savings on stock investments. For instance, the coronavirus pandemic is leading to a drop in stock prices in the short-run, which is a situation that continues to frustrate short-term investors. In contrast, long-term investors are less concerned about the epidemic (Detrihxe). As a result, the latter has the opportunity to maximize profit-making opportunities while preparing for catastrophic times ahead.

In various countries, a long-term investor usually benefits than a short-term investor from capital gains and tax advantages. The former typically pay less in terms of taxes, especially an active trader while the former pays more in terms of a minimal tax rate, which could be between 10 to 39 per cent. Moreover, long-run capital gains also range from 0 to 20 percent depending on income. As a result, holding stocks in the long-term saves the investor money in tax time. Furthermore, a growth investor who adopts a long-term investing strategy also makes massive savings on commissions. Costs usually play a critical role in the approach of an active stock trader. It is common for a short-term investor to incur high commission costs because of constant trading in the market. However, a long-term investor is unworried about commissions a few instances, or a dozen instances a year when they sell stock or add to their positions. As a result, commissions are a late addition to a long-term investor as gains usually cancel out in the long-run.

Many investors believe that investing in the long-run requires experience and expertise in this area, but this is false because anyone can engage in this approach to investing. It is relatively easier for an investor to choose a comprehensive portfolio of a promising business and invest in the next 10 or 20 years or more. Even though not all investment decisions will be right, an investor worries less as even the greatest investors like Warren Buffet are wrong in some instances. However, long-term investing allows an investor to grow their investments because there is time to correct mistakes by continuing to invest in companies that demonstrate strong growth potential, and other with compelling business models but are on a decline owing to a weak stock market. As a result, investing in the long term lowers the risk of investment and reduces anxiety and stress associated with short-term investing. It ensures that an investor hangs on a high-quality company with a low risk of volatility thus an investor does not need to stay abreast with changes in the market on a continuous basis (The Guardian).

Finally, long-term investing is suitable for growth investing because it guarantees an investor returns in the long-run. An analysis of asset categories throughout the history of the stock market reveals that stocks have outclassed other asset categories. For instance, between 1928 and 2015, the S7P 500 share returns averaged at least 9.5 percent per year, which compares favorably to a 3.5 percent and 5 percent return of 3-month and 10-year treasury bills and notes. As a result, a long-term investor is guaranteed to increase return because instead of relying on unpredictable short-term investing that may yield at least 13 percent returns on stocks, accumulation leads to higher returns in the future owing to low risk of investment.

In summary, growth investing is an approach to stock investing that is seldom embraced by many investors, as a majority wants quick profits. However, quick profits pose higher risks, especially for an investor seek to grow their stocks. As a result, many are turning to long-term investing, as many investors have made massive returns in recent years from this endeavor. In this regard, a long-term approach is suitable for growth investing as it offers sufficient time to understand the stock market, allow investor to focus on stock value, move stocks on the sides in case of unexpected changes, earn capital gains and tax advantages, and maximize returns.

Works Cited

Lowrey, Annie. The Stock Market Is Tanking. Do Nothing. The Atlantic. 2020,

https://www.theatlantic.com/ideas/archive/2020/03/dont-touch-your-stocks-during-coronavirus-crisis/607672/  Accessed on April 27, 2020

Ngoc, Luu Thi Bich. “Behavior pattern of individual investors in stock market.” International

Journal of Business and Management 9.1 (2014): 1-16.

Seetharaman, A., et al. “A study of the factors affecting the choice of investment portfolio by

individual investors in Singapore.” Accounting and Finance Research 6.3 (2017): 153.

Sraeder, Anne. Bonds vs. Stocks: What’s the Difference? The Street. 2018,

https://www.thestreet.com/investing/bonds-vs-stocks-14656707  Accessed on April 27, 2020

The Guardian. Fund raising. The Guardian. 2007,

https://www.theguardian.com/money/2007/jan/24/fundsbondstrusts.investments  Accessed on April 27, 2020

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