Famed investor Warren Buffett, or the “Oracle of Omaha” as some know him, is a legend of the stock market and still relevant today. His holding company Berkshire Hathaway is one of the world’s largest companies.
If you look closely at Berkshire, you will see tons of companies, some of which he’s held for decades without selling. It’s a drastic difference from what you see from talking heads on TV, who are always talking about the “hot trade” of the week.
So what can you learn from Warren Buffett that will help you make more money in the market? Here are three benefits of adopting Buffett’s long-term buy-and-hold approach to stocks.
Pay less in taxes
Taxes can be the silent killer of investment returns. When you sell any asset (for example stocks), your profit is called a capital gain. Of course, most governments will ask for a piece of that profit with a capital gains tax.
In the United States, capital gains are taxed differently depending on how long you hold a stock. Profits on stocks held less than one year, or short-term capital gains, get taxed like ordinary income.
Now, if you did well on a sale and made a sizable profit, these gains could be hit with a higher tax rate if they bump your total income into a higher tax bracket — as high as 37% in the United States.
Profits from a stock held longer than one year, or long-term capital gains, get taxed at a lower rate, between 0% and 20% depending on your income tax bracket. This can mean paying thousands less in taxes on a large sale. In other words, the IRS rewards long-term investors, so don’t look a gift horse in the mouth!
Fundamentals and patience create less stress
The stock market has been called a “casino” by some, probably for the irrational volatility that takes place daily. Many things can move stock prices in the short term; look at how up and down growth stocks have been over the past six months! There’s always a news headline, government statistic, or geopolitical…
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