Many long term investors like to get over active with their holdings. What I mean by this is that they attempt to time the entries and exits in hopes of working into a better average cost. Even for the most seasoned of investor this can prove to be hazardous to your returns. Today I will discuss two reasons why it may be best to dig in and hold for the long run.
Since 1900 the markets have returned an average of 7%. Think about all that has happened in that time period. The great depression, wars, and numerous economic crisis's. Even though all this happened the markets were still able to average 7%. Sure, inflation too away an average of 3% during that time period, but were still talking about an average gain that cannot be argued.
One of the most obvious reasons that you would want to hold for the long run and not attempt to trade in and out is, of course taxes. Long term capital gains in the states is currently MUCH lower than short term gains. If you attempt to trade in and out of your holdings then of course you would incur the much higher tax penalty. Even if you could time great entries and exits, would it generate enough to offset your new tax liability?
Another reason you may want to hold for the long run is to collect those dividends! Assuming you invested in a stock or ETF that paid a dividend, imagine the added bonus here. If you continue to average 7% just like history has provided, AND you collect some, ANY dividend you can see how this adds up.
Now, to be fair the study that shows a 7% average gain assumes that you would re-invest those dividends and not take them out or leave them in cash.
The point is that many people like to trade and this is a great thing, but if you have long term holdings then you may want to leave those alone while you trade with your shorter term capital.