Investing is when you put your money somewhere expecting to get your money back and then some. The ‘then some’ is your return. The idea is to get the largest return possible. You can get a larger return by investing more, choosing more risky investments, or investing for a longer period of time. This is called long-term investing.
Investing for a long period of time is when you hold onto an investment for more than 6 months. For example, if you buy 100 shares of stock in Google and then sell it 14 months later, you had a long-term investment. If it has been 5 years and you still own shares of Google, it is still a long-term investment. If you chose to sell the shares 3 months or 2 weeks later, it’s a short-term investment.
The reason there is a definition for long-term to be six months or longer is mostly for tax purposes. As far as stocks, if you hold onto shares long-term, or more than six months, you pay a different tax rate on the capital gains.
You don’t have to invest in stocks to be an investor that holds onto investments over time. You could purchase bonds, commodities, mutual funds, or any other type of security and be considered a long-term investor. Most people refer to this type of strategy as ‘buy and hold’. It means you purchase an investment and hold onto it for months, years, or sometimes decades.
Long-term investing is best for those who aren’t looking to invest as a job. They just want to supplement their income, build wealth, and put their money to work. Traders usually work long hours or at least 9 to 5. Traders are short-term investors. Those investing in 401Ks or IRAs for retirement are long-term investors. If you want to invest based on the fundamentals of the company, it’s a good idea to hold onto them.
When should you sell them? These time limits don’t mean you have to wait until you’ve owned it for six months to sell or that you ever have to sell them. If they are strong investments that you feel comfortable with, hold onto them for as long as you want.
If you feel you’d be better off selling the investment and buying something else or you need the money for another purchase, you can sell your securities. It’s up to you. That is why you should always be monitoring your investments and researching new investments. However, don’t be obsessive. Checking your stock prices 10 times a day, or even once a day for that matter, is not necessary.