How Long Should You Hold A Stock: It’s hard to remember but up until very recently, investing used to be limited to a closed circle, out of reach to many market enthusiasts.

All that changed with online broking, allowing everyone with a PAN card, a smartphone, steady internet, and a bank account to invest in the market.

Now everyone had access to the markets at their fingertips. Initially, this might have felt like a dream come true, but to the new investors, it raises more questions than it answers.

Some of the most basic questions they might ask themselves are – “Which stock to buy? When to sell a stock? How long should you hold a stock?” among other questions. 

Think of having a Demat account as having a driving license. You have access to any (investment) vehicle but it takes knowledge and experience to know how to get there.

In this blog, we’re going to answer one important question that all investors, new and experienced, have – How Long Should You Hold A Stock?

Buy And Hold Strategy

If you take a look at the portfolios of ace investors such as Warren Buffett, Rakesh Jhunjhunwala, and Vijay Kedia, you’ll notice that among all their holdings, they will have stocks that have stayed there for 10-20 years or longer.

These stocks have long since become multibaggers in their portfolio, doubling, tripling, and quadrupling their investment long ago. Yet, they still hold onto the stock.

Generating wealth takes time and patience. But these investors have held these stocks near and dear for decades together. It’s because they have one important trait in common. 

Ace investors follow a strategy known as Buy & Hold. They invest a lump sum of money into a stock and avoid looking at short-term fluctuations over long-term returns.

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To quote Warren Buffett, “ If you cannot hold the stock you are buying today for 10 years, you should not buy that stock.” 

How Long Should You Hold A Stock?

There is no fixed time to hold a stock in your portfolio. Each and every stock in the market has its own volatility and it is difficult to determine the correct time to buy or sell.

This is why knowing the minimum time of investment is difficult to determine. Even after picking the stock, it is unlikely that the stock will give profits the very next day. 

If they want, Investors can buy a stock and sell it tomorrow. But even ace investors don’t sell despite making immense gains over the long term.

This is because they are aware of the benefits of long-term investing, and it is not only related to profits. For example – Taxes on long-term capital gains are different and slightly lower than on short-term capital gains. 

Read More about Taxation On Long Term Capital Gains Here.

Benefits Of Long-Term Investing

Long-term investing works and ace investors are proof of how well it benefits shareholders. Over time, compounding takes effect when your portfolio consists of good-quality stocks.

This is especially true if you are investing in the stocks at their lower levels, gradually increasing in value, and also adding more stocks when their prices dip in the market.

This will also average your investment and give you better returns in the future as well.

  • Instead of buying more during the dip, if you sell due to fear of losses, it will save you money in the short term but might end up missing out on multi-bagger opportunities. 
  • Another advantage of holding stocks, in the long run, is that you have to pay lower management and brokerage fees. It makes your overall investment cost-effective. 
  • Long-term capital gains are taxed lower at a maximum of just 20% of the returns. But taxes on short-term capital gains go as high as 37% on the return on investment. 

When Should You Sell A Stock?

When it comes to investing, there is no fixed time to hold, buy or sell your investment, although it is better to stay invested in the long run.

During that course of time, your holdings will go up substantially, and you’ll even come across days where your portfolio consistently gives losses.

The stock will undergo volatility throughout the year. The challenge is to stay invested during this time and avoid the temptation to sell your holdings completely.

It’s during this time that you might find yourself asking the questions, “How long should You Hold A Stock?” or “When should you sell a stock?”. 

The ideal holding period is to hold your stocks until your investment goals are met. This is unless you are short of funds and have no other choice but to sell.

Beyond that point, you can choose whether to sell or hold as your financial goal has been achieved. 

In Closing

Thanks to technology, everyone can invest using their smartphones. But having half-knowledge is as dangerous as a loaded weapon.

With access to knowledge and free education everywhere, it takes a few minutes of research to learn everything you need to know about the markets.

Join Fingrad to go the extra mile and arm yourself with the knowledge you need to start your investing journey. We hope this blog answered your question, “How Long Should You Hold A Stock?” Happy Investing!

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