Stock market : long term and short term investment

Long-term and short-term investments are two different approaches, each with its own objectives and strategies. The differences between these two types of investments are compared in the table below.

Long-Term Investment

1. Objective: The primary goal of long-term investors is to hold assets for an extended period and benefit from the company's growth and profits. Typically, long-term investments are made with the concept of pension funds.

2. Benefits: Long-term investors generally invest in shares of companies that show substantial growth over time, pay regular dividends, and are easy to sell. Investments are made based on the company's fundamental aspects.

3. Risk Tolerance: Long-term investors can generally tolerate higher risks as they have experience dealing with market fluctuations over a long period.

4. Strategy: A common strategy for long-term investors is to buy and hold assets for a certain period. When new investors are fearful, long-term investors buy shares of companies they trust and sell when there is a buying frenzy among new investors.

5. Tax Benefits: Long-term investors also benefit from lower taxes. Assets held for more than one year are subject to only a 5% capital gains tax.

6. Transaction Frequency: Long-term investors typically trade less frequently. Once they purchase shares, they hold onto them unless there is a significant deviation from their plan and goals. They do not re-enter the market until the shares reach their buying level again.

Short-Term Investment

1. Objective: Short-term investments are made with the aim of gaining immediate returns. Investors take advantage of market fluctuations to meet liquidity needs and capitalize on short-term opportunities.

2. Benefits: Short-term investors often invest based on market rumors, advice from friends, and in small companies. They focus on technical knowledge for buying and selling, rather than the company's growth or dividends.

3. Risk Tolerance: Short-term investors have a lower risk tolerance and typically have less capital, so their focus is on preserving capital and targeting immediate returns.

4. Strategy: Short-term investors are usually involved in active trading. They make buy and sell decisions based on technical analysis and market timing.

5. Tax Implications: Short-term capital gains tax is generally higher than long-term capital gains tax. Selling shares within one year incurs a 7.5% capital gains tax, affecting the overall return.

6. Frequent Trading: Short-term investors continue to buy and sell regardless of whether they achieve short-term goals. This frequent trading results in higher transaction costs compared to long-term investors.

Which Investment is Suitable?

Long-term investment is suitable for individuals with financial goals that can withstand market fluctuations over a long period. Short-term investment is ideal for those seeking immediate returns and wanting to capitalize on short-term opportunities.

Both types of investments require diversification and risk management. Combining both long-term and short-term investments in your portfolio can help meet various financial needs and objectives.

Conclusion

Choosing between long-term and short-term investments depends on your financial goals, risk tolerance, and investment horizon. A well-balanced portfolio addresses different financial needs and provides stability and growth over time. Considering the benefits and risks of both investment types is crucial for making informed decisions.