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As an individual investor, you have access to a plethora of investment strategies. You can put your money into growth stocks, dividend stocks, or index funds. You can diversify by investing in cryptocurrencies. To increase leverage, you could use options or a real estate mortgage.
However, there is one overall investing strategy that works exceptionally well for individual investors: taking a long-term perspective. Making an investment decision based on what it will look like in five, ten, or twenty years produces fantastic results for the vast majority of investors. Here are some of the benefits of thinking long-term.
It is extremely difficult to predict where a stock price will be a year from now. There could be dozens of professional Wall Street analysts following any given company and predicting where the stock price will be a year from now. Two highly intelligent professionals can have vastly different predictions for where the stock price will be in a year, and they're frequently both wrong. A stock price is frequently influenced by factors beyond management's control, and it may not accurately reflect the company's operations. If a global pandemic breaks out, for example, the stock market as a whole may fall. Over time, however, winners begin to emerge. The stock of a good company will outperform its peers. Investing in these companies will pay off in the long run, but it may take some time.
Long-term investing also allows you to place larger bets on companies that share your long-term vision. A company may invest heavily in R&D and scaling its business, and it may burn cash for many years before its efforts yield meaningful earnings. Maintaining a long-term perspective also allows you to reduce your tax burden. If you need to sell a stock because it no longer fits your thesis, you need to rebalance, or you need to liquidate holdings, you'll most likely be able to take long-term capital gains.
Not only that, but you'll be able to plan your taxes more efficiently as well. You may take capital gains at the most advantageous time, filling up the 0% tax bracket. You may be able to harvest capital losses and use them to offset gains. When you keep a long-term perspective, you can take advantage of a variety of tax strategies.
If you keep a long-term perspective, you'll have more patience for investments that you believe will outperform in the long run. Finally, that is the best way to make your money grow.
Questrade is Canada's largest discount brokerage firm. It provides an excellent balance of platforms, trading markets, and services, including multiple account types. Questrade is an excellent choice if you live in Canada or if you have international clients who want to trade regional stock exchanges in Canada and the United States.
Use Your TFSA to Purchase Stocks
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