Pros of Holding on to Stocks for the Long-Term

There are so many routes to take when it comes to investing. From several thousand traded stocks to choose from, myriad types of investment vehicles, and limitless opportunities to invest, investing is a broad concept with many paths. However, one thing is a constant amidst all the market changes: long-term investment is a concept marketing experts will highly recommend, and it’s not limited to just one investor category – instead, it’s applicable across the board, be it newbies who’re just getting started to seasoned investment professionals.

A long-term investment strategy is holding investments for over a year, including assets like stocks, mutual funds, bonds, ETFs, etc. Of course, sticking to long-term investment requires a lot of patience and self-discipline because there is a level of risk associated with it, but it ultimately pays off with higher rewards down the road.

So why do experts encourage holding stocks for the long term? Let’s explore this in detail.

Long-Term Returns

Stocks usually increase in value with time. Economies, more often than not, move upwards, as does inflation, so the longer you hold on to your stocks, the more they will increase in value. Short-term share trading has much to do with your expertise and a fair share of luck, while long-term investment is about patience. Moreover, it’s more likely to deliver better returns, giving you the ability to compound your profits. This allows you to reinvest your profit into the shares to gain a more significant profit potential.

Let’s take a look at history. Across time, shares have proved to be an excellent long-term investment that averages about 9.5% per annum return across a decade. This means that you would need a five to ten-year time horizon before seeing its full benefits.

More Significant Potential for Growth in Value

Dollar-cost averaging is a method where you invest equal sums of money in your stocks at regular intervals, irrespective of the price. The idea behind this concept is to not invest at the wrong time with one lump sum. You will invest at less profitable times, but you will also invest at better times. Regardless, your investment is constantly increasing, and the profits you reap from the good times will compensate for any losses during the bad.

Prices are likely to change every time you invest; over time, regular investments will lessen the impact of volatility. Investment is a numbers game. The more you invest, the more your stock increases, and the more returns you will gain.

You Get to Ride Out the Lows and The Highs

The share market is volatile; there’s no denying that. However, even when the market fluctuates, the amount of stocks you hold does not. A simple principle of stock investments is that you only make a loss when you sell. Even during a market downturn (such as at the start of the COVID-19 pandemic), when prices dropped exponentially, selling shares wasn’t necessary because historical trends have taught us that the market is bound to bounce back.

If there are share market lows, you can ride them out by being disciplined. So long as you have a diversified portfolio of stocks, the prices will increase again. At the same time, you have to ride out the highs too. It’s easy to get over-excited when the markets are doing well. As tempting as it is, when you stay disciplined and reserve cash instead of overbuying shares, you can purchase them for a lower price when the market has a downturn.

Remember, this is not timing the market. Instead, you allow your stocks to do the work for you. When you invest in the long-term, you won’t become a victim of the highs and lows but consistently get the best value from your stocks.

Emotions Don’t Dictate Your Moves

Long-term investments almost entirely take emotion out of the equation. Even if a market jumps 15% within a few days, you won’t get too eager or panic when the stocks fall. With long-term investments, you get to focus solely on their growth.

Besides, it is far less stressful too. There is no need to stay on the edge of your seat each time or scratch your head over why your portfolio exploded overnight. A long-term investor will sleep better at night, and that’s a luxury in itself.

Lower Capital Gains Tax Rate

You must pay taxes on the profits made when you buy stocks for a low price and sell them for a good profit. This can cut into the value of holding stocks. This is why holding stocks for an extended period will enable you to take advantage of capital gains reductions. Holding onto shares for more than one year will make you eligible to gain a 50% reduction in the capital gain that causes a portion of your taxable income.

You must pay taxes on the total capital gain when you sell your stocks within a short time frame. Irrespective of whether you sell for an enormous profit, this compromises the profits you should get. On the flip side, investing for the long term helps to avoid this.

Lessens Trading Costs

You can never time the market; attempting to do so will be costly for your portfolio. You pay a transaction cost each time you trade, so you pay a fee every time you buy and sell stocks. With a long-term approach to investing, you end up paying less in trading costs. By prolonging the time you hold the shares by not touching them for about five to ten years, you’re only required to pay transaction costs when you buy more or sell.

Final Thoughts

There are many reasons why people choose to invest in the long term. This could be to save for a college education, a future house, retirement, long-term care of elderly parents, and so on. When you decide to become a long-term investor, then it’s important to choose investment strategies that align with your risk tolerance and expected returns.

Investors with more experience and outstanding capital can ride the market waves and reap money with short-term trading techniques. Holding on to stocks for a 5-10-year period allows you to grow the value of your stocks, gain better returns, enjoy lower taxation, and lessen trading costs. Also, it will enable you to navigate market volatility with relative peace of mind.

6 Types of Car Insurance Policies for Every Vehicle Owner

Before you purchase a vehicle, you should know how automobile insurance works. There are different types of insurance policies to cater to your needs. In the event of an accident or loss, having a car insurance package can protect you, your passengers, and your vehicle financially. This will also help you serve justice to someone affected by an accident in which your vehicle is involved.

Every country or state requires you to have mandatory insurance coverage. Therefore, you should have a better understanding of the different types of policies so that you can choose the right kind of insurance package for you. Here are 6 types of the most common types of car insurance policies:

Liability Coverage

Liability coverage is one of the most common and legally-required policies in most states. Every driver should have the minimum coverage defined by law. There are two components of liability coverage called BI liability and PD liability.

Under BI (bodily injury) liability, you will be financially responsible for the other party’s injury if you’re the one who caused the accident. This may also cover legal fees if lawsuits are involved. PD (property damage) is when you are held financially responsible for causing damages to someone’s property during an accident. The amount of money you can claim during BI/PD will be limited to your policy coverage.

Underinsured/Uninsured Motorist Coverage

This is another crucial vehicle insurance policy a driver/vehicle owner should possess. If you meet with an accident and another driver is at fault, uninsured policy coverage can be of assistance when the driver at fault does not have liability insurance. As for an underinsured policy, it comes into play when the driver at fault does have liability insurance, but his policy is insufficient to pay for your losses.

An uninsured policy will also help to financially protect you if the driver who caused the accident flees before any investigation can take place. These policies are optional in some states, but compulsory in others.

Comprehensive Coverage

Comprehensive coverage is mostly an optional insurance policy to protect your vehicle from loss or damages caused by something other than a collision with another vehicle or object. Therefore, it is also called “other than collision coverage”.

Comprehensive coverage insures your vehicle from damages caused by fire, theft, explosion, earthquake, riots, flood, etc. Though it is optional, it is highly recommended you get one, especially if you are leasing or paying off your vehicle in installments as your lender may want you to have one. For comprehensive coverage, the amount you can claim during these kinds of accidents could be the actual cash value of the vehicle.

Collision Coverage

Collision coverage is there to pay for any damages caused to your vehicle if it collides with another vehicle or other objects such as a tree or fence. It will help pay for the repair or replacement of the vehicle. This is another optional policy – unless your lender requires you to have one while you’re still making car payments.

Medical Payments Coverage

Medical payments coverage is an optional policy that is meant to protect you and your passengers no matter who caused the accident. This policy may cover hospital/ doctor’s appointments, surgery/x-rays, ambulance/emergency care, or professional nursing services. Health insurance deductibles and co-payments may also be applicable. You can choose limit coverage based on your needs, and don’t forget to take into consideration the emergency medical costs!

Personal Injury Protection

Personal injury protection is only available in some states where it is mandatory. This policy will pay for medical expenses that are not covered by your health insurance for injuries caused by an accident. This will also pay for expenses that come with accidents like lost wages or childcare. The coverage limits may depend on where you live.

A Final Word

These are some of the basic insurance policies for vehicles that are designed to protect you, your vehicle, and the passengers involved. Each of them serves a unique purpose to make life easier during an accident. These policies can be highly beneficial if one is not in a good place financially in the face of such a tragedy.

If you are hunting for vehicle insurance, now that you have a fair knowledge of what each policy means you have to look for a reliable insurance provider. Depending on your financial capability and what you need to cover, you can opt for the most suitable package you want.

What Is a Business Card & Why Should You Get One?

Undoubtedly, money cannot fix all problems, but no one would deny that having a lot of it isn’t helpful. Businesses with adequate funds can satisfy their requirements, make prudent investments, and adapt effectively to changes in the market. There are several ways to obtain additional funding for your company. Acquiring a business credit card is an excellent move to start. The following article can guide you on how a business credit card could help you establish and grow your business.

Business Credit Cards Explained

Business owners are the intended audience for business credit cards. You can obtain a business credit card whether you run a small or newly formed business, are the head of a global company, are a sole proprietor, or run a partnership. Certain business credit cards could suit your business needs more effectively than others. Most companies use credit cards to make payments for work-related expenses, like travel or purchasing office supplies and furnishings.

Nevertheless, the terms and conditions of certain business credit cards restrict customers from using them for minor expenses. A business credit card is highly beneficial if you ever request a loan. As lenders and other banks consider your business credit card, it will make the process easier. Certain credit cards enable short-term loans if you require financing for a significant purchase.

Who Can Apply for a Business Credit Card?

Indeed, a business credit card is an appropriate choice if you intend to separate your personal and professional expenses. Moreover, you should also possess the required personal credit to get the card in question. However, some credit cards may ask for evidence of income, but it is optional to have a storefront or a big staff.

Consider applying for a business credit card if your business falls under any of the following categories:

  • Major business owners
  • Small business owners
  • Limited-risk businesses
  • Sole proprietors
  • Corporations
  • Freelancers

Why Should You Consider a Business Credit Card?

Business credit cards include both benefits and drawbacks, similar to everything else. The following are among the most common benefits associated with a business credit card.

Separation Of Personal and Business Expenses

Personal and business expenses must be kept separately to simplify your financial operations. You can maintain clean records by refraining from combining your personal belongings with the firm’s assets. Using a separate credit card solely for business purposes can protect your assets and keep your accounts organized.

Easy To Use

When you make a transaction, a business credit card tends to be much simpler and quicker. In addition, it is easy to carry in your wallet instead of carrying a lot of cash or your checkbook. Significantly, using a business credit card for internet purchases is much more convenient. Given the market’s rapid transition to a cashless economy, certain goods and services could only be purchased with a credit card.

Secure Mode of Purchase

The majority of cards give you the option to dispute any erroneous payments on the account. Moreover, you can hold the price until the issue is addressed. In unfortunate events of your products being misplaced, stolen, or not delivered, several credit cards guarantee some purchase protection.

More Accessible Than Getting a Loan

Applying for a business credit card tends to be more accessible and less complicated than applying for a traditional small business loan. This can be the case if you lack sufficient collateral, which banks and other lenders frequently request. It could be either for a conventional loan or a business line of credit.

Less Cash Flow Concerns

Most fresh entrepreneurs begin their businesses with a small investment. Regardless of whether you need more cash, a business credit card can assist you in purchasing the required items. This can eventually smooth out the cash flow, lessening the impact of temporary fluctuations in your business.

Labeling Of Costs

Several business credit cards offer a breakdown of costs by grouping, including supplies for the office, lodging, dining, etc., which can simplify the accounting process and filing taxes. It could particularly be beneficial if you are the focus of a tax audit.

Good Terms

Business credit cards frequently come with more favorable conditions than personal credit cards. They include reduced rates of interest, greater limits on credits, lengthier interest-free periods, and rewards to encourage timely payments.

Develop Business Credit

An excellent history of payments can assist in developing and enhancing the credit ratings of your business. Indeed, improving your credit score can benefit you in many ways. It enables you to obtain more money at lower interest rates, reduce your insurance costs, and possibly make it more feasible to rent a property.

The same thing applies to your business credit. The owners are often required to provide a personal guarantee of the loans to the businesses, regardless of how a company operates as an LLC or a corporation. Personal guarantees could be eliminated once the business achieves an excellent credit record.

Maintain Staff Spending Limits

You could obtain more credit cards for your work staff once you open a business credit card account. With this account, you can monitor your work staff’s expenditures, making running the business less complicated. Placing spending caps on each staff member is best to ensure they stay within their permitted spending limits.

Travel Perks

A business credit card might come bundled with more benefits than personal cards. It could offer higher cash-back or frequent-flier points, waived baggage costs, entry to airline lounges, and savings on hotels and rental cars. A cash-back rewards card can be ideal if you do not often travel on business trips.

Drawbacks of Using a Business Credit Card

Less Extensive Consumer Protections

Given the law, business credit cards have no obligation to provide CARD Act protections, which personal credit cards offer to their customers. Yet, many business credit card providers have freely agreed to customer protections.

High APRs

Unlike the SBA loan or a standard loan, a business credit card will be more costly when used to pay for business expenses. Business credit cards are subjected to higher regular APRs, much like most credit cards utilized for personal expenses.

Personal credit evaluation and guarantee

Nearly all business credit cards need to examine applicants’ personal credit history. This is since any outstanding balance the merchant fails to pay becomes the cardholder’s responsibility.

Bottom Line

You must be mindful of the significant differences between a business and a personal credit card. Consider applying for a business credit card and ensure to separate your personal and business expenses. As the intended purpose of a business credit card is to work for your benefit, be attentive and prudent before making your choice to avoid creating any issues in the latter stages. You can enjoy numerous benefits and rewards that a business credit card offers if you manage your finances effectively while maintaining excellent credit, as desired.

Everything You Need to Know About Robo Advisors

Investment is a tricky business involving a lot of foresight, management, and careful execution. It’s easy to get diverted by the sheer selection of options in the market, and putting in the effort to plan, monitor and adjust your portfolio can be daunting. When any task appears too difficult to handle, we often turn to technology, so it’s fair to ask: what if there was an automated tool to manage my investments?

Luckily, this is very much a readily available option. Since automation has streamlined nearly every facet of life, robo-advisors are quickly emerging as an excellent option to manage one’s wealth.

If investing is your forte, then the odds are that you have probably heard about robo-advisors. The picture that pops into your head when hearing this term is perhaps of a robot that is wonderfully managing your investment portfolio. Still, robo-advisors are automated investment services that are managed by software.

What’s A Robo Advisor?

These are computer-based programs that invest and manage your money. The program will request information regarding your investment goals and then put that information through an algorithm to decide the ideal funds per your preferences. You can compare it to how Google shows results based on how the search words were typed.

Essentially, a robo-advisor is a digital financial advisor that manages investments and offers financial advice with minimal human intervention. Robo-advisors are regulated by the U.S. Securities and Exchange Commission (“SEC”) and state securities authorities.

How Do Robo-Advisors Work?

Robo-advisors use algorithms to understand and predict the investor’s preferences. This is usually done by getting the user to answer a set of questions, which is then used to generate a model portfolio. It’s important to note that each robo-advisor is different, but its operation is more or less the same. In quick steps, here is how a robo-advisor works.

  1. The user answers a short questionnaire that will be used to assess their investment needs and goals, and risk tolerance.
  2. The robo-advisor then automatically builds a diversified portfolio of funds. A team of investment experts generally selects this.
  3. These experts will then track market activity and the underlying investment to ensure that the user’s portfolio is well-rebalanced with the help of sophisticated algorithms. This ensures the investor doesn’t have to tackle all this technical jargon.
  4. Certain robo-advisors also include access to a certified financial planner or a live consultant. These professionals will help align one’s goals and offer recommendations on how to reach one’s financial goals.
  5. The investor can then log in to their account to track progress, add contributions, and make adjustments accordingly.

Benefits Of Robo Advisors

Offers Easy Access

An investor only needs an internet connection to make use of robo-advisors. It’s easy to use, and the fees are significantly lower when compared to the services of a human wealth management advisor. This makes it a desirable option, especially for those who are just being introduced to the world of investment.

No Human Biases Involved

When looking for opinions from other human beings, there is always an underlying possibility of being fed biased opinions. Sometimes, even the most skilled advisor can be blindsided by their bias towards a specific asset class. Since robo-advisors use mathematical algorithms to assess the investor, they are impartial in their output.

A Comprehensive Level of Service

Robo-advisors offer various services that tackle the full spectrum of financial planning, including tax strategy schemes, retirement planning, and rebalancing portfolios. The robo-advisor will manage your portfolio to ensure you are on track to minimize liabilities and attain your investment goals.

Ability To Track Investment Priorities

Robo-advisors can effectively build investment goals based on your profiles. Setting up a robo-advisor account will trigger investors to make responsible decisions that can prove to be critical in the future. Since long-term goals such as retirement planning are generally overlooked by young investors, robo-investors have in-built mechanisms to track goals with the help of timely reminders.

Ease Of Use

Monitoring investments by themselves can be time-consuming as well as complicated. Seeking financial advice also requires a high minimum portfolio balance. Robo-advisors, on the other hand, are an accessible and more cost-efficient mode of investing.

Rebalance Aspect Is Taken Care Of

Once you have opened your account, the robo-advisor will build a diversified portfolio. The balance will likely drift over time based on market conditions, withdrawals, and contributions, and a robo-advisor can automatically rebalance investments.

Robo Advisors &Their Limitations

The lack of human intervention, as convenient as it may be in many aspects, is also a hindrance in some others. Robo-advisors are very popular among millennials, but it’s far less accepted by high-net-worth individuals with more extensive portfolios and those who want to invest a considerable chunk of their savings. These investors often seek validation through human advice, particularly during market volatility.

The uneven standards of robo-advisors are another limitation. While some robo advisors use machine learning and breakthrough AI to design portfolios, other robo-advisors may use simple methods, which could be a drawback.

Are Robo-Advisors a Good Option?

The answer to this question is mainly dependent on one’s personal motivations. A professional wealth advisor will be the ideal way forward if you want a private discussion before investing. But if you’re looking for quick access and easy transactions, then robo advisors are a good option. The average fee is between 10 bps and 50 bps, and the paid robo-advisors offer very reasonable services that are well worth the price. Bps, “bips” when you say it out loud, are basis points – each basis point is one one-hundredth of a percent or 0.01%.

Given the direction in which technology is progressing, it’s safe to say that robo advisors can become the future of wealth management. As with all automation tools, robo advisors have the scope to become more intelligent, predicting our preferences and making significant decisions. It’s still pretty early days for this technology, but it’s slowly starting to establish trust among investors, which has, in turn, caused an increase in its user base.

It’s important to remember that when choosing a robo-advisor, one should carefully consider investment strategy and fees. Investments should be monitored periodically to ensure that they align with your goals. And if your goals shift over time, plans should be changed accordingly.

Understandably, there is much hesitation when trusting your money with a software application. However, rest assured that robo-advisors are rather sophisticated and offer many excellent services for a reasonable cost. It can help those looking to find their footing on the investment ladder and be an excellent option for seasoned investors looking to save additional costs.