Kavan Choksi Discusses Benefits of Holding Stocks for the Long Term

Investing in stocks for the long term can be an efficient way to build wealth and achieve one’s discerning financial goals. As Kavan Choksi says, even though the stock market experiences short term fluctuations, historically, holding stocks over a prolonged period of time ideally leads to growth and positive returns. Investors who are patient enough do ride out market volatility and take advantage of compounding returns, capital appreciation and dividend growth.

Kavan Choksi highlights the advantages of holding stocks for the long term

In the context of stocks, a long-term holding implies to retaining an investment for at least one year or more. A large number of long-term investors opt to retain their holdings for five, ten or even twenty years. These investors put emphasis on prospects for the performance of a stock over a prolonged period, instead of short-term price fluctuations. Investors strive to benefit from the sustained growth and capital appreciation of a company by holding onto a stock over a long period of time. On the other hand, short-term investing typically involves holding a stock for a few weeks, months, days or even shorter period of time. The goal here is to capitalize on brief market swings or specific events that impact stock prices temporarily.

There are many benefits of holding stocks for the long term, including:

• Compound growth: Compound growth is among the most important benefits of long-term investing. As one chooses to reinvest their earnings, like capital gains or dividends, their investment shall grow at an accelerated rate. This compounding effective can increase the value of one’s portfolio significantly over time, especially if it is held over decades. The earlier a person starts investing, the more time will their money has to compound, ultimately leading to substantial growth.
• Reduced impact of market volatility: The stock market is subject to short short-term volatility. Fluctuations in stock market prices can be caused by multiple factors, including investor sentiment, political events or economic conditions. Even though market volatility can be unsettling for the investors, these fluctuations ideally smooth out over the long term. If the investors do wait long enough, they will see that the broad market always recovers.  When investors hold onto stocks for a longer period of time, they would be relatively less impacted by day-to-day price changes and have higher odds of benefiting from the long-term growth in the market.
• Dividend growth: A large number of term investors benefit from dividend-paying stocks. Companies that pay dividends regularly often increase the size of their payments over time. These dividends allow investors to enjoy a consistent stream of income. They may additionally reinvest these dividends to buy more shares, and compound their returns. This factor makes dividend-paying stocks especially attractive for long-term investors.
• Potential for capital appreciation: With time, companies are likely to grow and become more profitable. As a result, their stock prices also rise. Investors can benefit from this capital appreciation by holding a stock over a long period of time. Successful long-term investments in companies that perform well can lead to considerable increases in the value of one’s portfolio, even if occasional dips are experienced by stock prices along the way.

As per Kavan Choksi, when selecting stocks for long-term investment, it is vital to look for companies that have strong fundamentals as well as the potential for sustained growth.