People say there is huge money to be made in trading. It is true, those who are successful at trading make tons of profits. However, the important point that people usually miss while reading these glossy statements is that only 2% of the traders are actually successful and make money. It means, if you are going to try your hand at trading, the odds are heavily against you. If you don't mind taking high risks and losing a considerable money in the process then you can have a swing at trading. After all, only after trading, you will know whether you are good at it or not.
However, many people don't have the risk appetite to take big-stake trades. Moreover, when you know that the chances of succeeding are so slim, a smart, thinking creature should immediately turn around and look for investment avenues which give not just better returns but also keeps the capital safe.
Can Any Other Medium That Gives As Good Returns As Trading?
The answer is - NO. No other medium be it equity, real estate or gold can be as effective as trading, in short term. But there are mediums which are far safer than trading. In trading, there is a huge risk to your capital. It is perfectly capable of wiping out your entire account if you haven't assigned a stop-loss. The best and the most effective method of getting good returns is long term investment in equity.
The Advantages Of Long Term Investment
Experience The Power Of Compounding - To put it simply, compound interest means the interest you get on the interest. You would be wondering how is it connected to stock investment? There are various perks of long term investment. On the long term basis, you get regular dividends on the stocks your holding. The dividend is a reward you get on your stocks from the company. The assumption here is that you have invested in companies that have good dividend yield rate. As the dividend is a bonus income, it's an opportunity to roll it over into other good stocks which, in future, will bring you more income. As you are earning income from the income it can be said that this is a form of compounding. This way you are experiencing the power of compounding in your direct equity investment. That a great deal, isn't it?
Pay Less Tax & Brokerage - The big benefit of long term investment in equity is that you get extensive tax exemptions. When you hold the stocks for more than 1 year, the tax is considerably less than what you will pay if you sell them before one year. These are the benefits of long term capital gains. Investors generally underestimate the importance of tax discounts and rebates. Due to their negligence, they end up paying more and miss out on rewarding opportunities. But if planned well, saving tax is just like earning profits. This is the reward that short-term investors and intraday traders miss out on as they don't hold their stocks for more than 1 years. Not only that, as intraday and short-term are way riskier than long term, the capital they invest in their trades also has to bear big risk as it has to live through the day-to-day market volatility. It will be safe to say that no other investment instrument gives tax and growth incentives like the long term investment. Therefore it's always better to buy when you are absolutely certain of the stock's fundamentals. Remember, every penny that you save is the penny you earn.
Peace Of Mind - One of the biggest and the most underrated advantages of long term investment is - peace of mind. Yes, this is not any monetary gain or tax incentive but this quality is important in the larger scheme of things. Trading, contrary to investing, is an affair filled with dramatic highs and lows which consequently have a toll on your health. It's stressful and prone to give anxiety to those who can't deal with high-stakes trades. Long term investment is about becoming a part of a success story of the company. As it is not about pocketing some profit and moving on, a person involved in the long term investment enjoys a possibility of getting advantages like bonus shares, split shares and regular dividends from the company. On top of that investors also gets plenty of peace of mind as they can rest assured about their capital which will only grow with the company.