What are three reasons to hold a stock for one year? There are just as many reasons to hold a stock as there is to sell a stock, but here are three of the main reasons to hang onto your investment for at least one year.
Taxes
One of the first thing that comes to mind for most people are taxes. When you sell a stock there are tax consequences. You will either receive a gain or a loss on the sale of your stock. Either way, you will be required to report it when you file taxes.
The main takeaway here is to understand the difference between short-term capital gains and long-term capital gains.
Short-term capital gains are taxed as ordinary income and are the consequence of holding an asset for less than one year. So, whatever tax bracket you are in is how this type of tax will be calculated. If you day trade, then you will be subject to short-term capital gains.
Long-term capital gains are taxed at a set graduated scale of either 0%, 15% or 20%. As you may have guessed, they are subjected to assets that are held for one year or more.
This is a rather simple definition of short- and long-term capital gains, but you can see the tax advantages to holding a stock for at least a year. As always, consult a tax professional for a clearer understanding of taxes.
Risk Tolerance
Many investors are risk averse and have no interest in trying to time the market. Long term investments will often beat out trying to time the market in most cases. This is where holding stock for the long term comes into play.
Buy and hold is a popular strategy whereby people will buy a stock and hold it for years, decades, or even their entire life. If an investor believes in the long-term outlook of a company, or if they are collecting dividends, then they are probably not going to be selling in the short term.
Passive Investing
Buying and holding a stock for a long period of time is easy and is hands off. If you create a dividend portfolio and set everything to automatically reinvest, then you will have a passive income stream that only needs periodic checkups. This is my strategy for stocks. Everything in my portfolio was bought at least a decade ago.
Trading stocks is a lot of work and can be stressful. It can be rewarding, but many people don’t have the knowledge or appetite for risk required to do it. This is where a hands-off approach of buying and holding can be beneficial.
Wrapping Up
What are three reasons for holding a stock for one year? Taxes, Risk Tolerance, and Passive Investing are three main ones. There are countless others, and you will need to decide an investing strategy that works for you. What are some reasons why you buy or sell stock?
Read Also:
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What Are Stocks That Pay Monthly Dividends?
The Importance of Doing Your Taxes Properly
Things to Look For When Investing in Small Cap Stocks
Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.
