A lot of people know that most of the world invests so that they can get capital gains on what they own. If you buy something at five dollars and it goes up to ten, you can sell it for a tidy profit. And if that just happens to occur within a span of a few weeks or months, so much the better. You can get your money back, a handsome profit for the time period you had it in there, and then you can invest it into something else (such as a new car or a vacation… or another investment if you have the discipline). As great as it is to invest for this purpose, however, there are a couple of limitations to that. For one, you have no idea where it will go in the future. What goes up does not always come down, even considering the past few years. And for another, you can reap benefits from holding on longer, in some cases.
As a lot of people know, the long term capital gains tax rate is substantially lower than what you would pay if you took your gains more quickly. While this is intended to punish the immediate gratification seekers or to reward the folks who are willing to delay their gratification is anyone’s guess, but the overall effect would appear to do both. When you consider that the world has a lot to offer a person who keeps more of their money, it just does not make much sense to sell so quickly. After all, it is only a year before it is considered “long term.”
You might also want to keep in mind that, with a lot of investments, you can garner benefits from them if you keep them over time. If your stocks pay dividends, for instance, they can add up to some nicely, favorably taxed gains that do not require any effort on your part whatsoever. A similar situation can occur with real estate that you rent out, or to bonds that you hold until their maturity date. So keep great investments.