Longterm Vs Short Term Trading

Long term vs. the short term, which one is better to invest in? This is a question that is very debated. Many investors will say long term is the best way to make money.

At the same time many traders will say that compound interest make short term trading the best way to trade.

Let us look at the advantages of long term trading first. When you trade for the long term you get away from all of that short term volatility. As a result you will be right a lot more. After all, a good stock should eventually go up in the long run.

Another advantage is that you can collect dividends. Many stocks can pay out nice dividends to their shareholders month after month. This could produce a nice monthly income for you.

One of the biggest benefits of trading long term is taxes. When you make money in the stock market you are taxed differently for long term and short term trading.

Long term trading has nice advantages over short term trading. So why would someone want to trade short term?

For one thing short term trading can pay the bills. Many long term investors will say that dividends will give you monthly income. This may not be the best way. Think about it most dividend stocks will pay you maybe 5% of the stock's value every year.

Divide this by 12 months and you only get .416% a month. So if you invested $100,000 into a dividend paying stock you may get $416 a month. Nice, you can't live off it but it's nice. However if you took that $100,000 and made $6-$8,000 a month you can do pretty well with that.

The other advantage of short term interest is compound interest. If you wanted it to grow you can just reinvest what you make. If you take that $100,000 and invest it at 15% a year after 2 years you would have $132,250.

If you took that same $100,000 and made 5% a month off it after 2 years you would have $322,509. Short term investing gives you a much greater growth advantage then long term.

Still long term investors will stay long term. They prefer the less risk, almost guaranteed profits of long term investing.

Some traders will have both a long term and a short term account. This way their money can get exposure to both slow and fast growth. It is really down to the individual trader.

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