Why invest for the long-term rather than buy and sell for quick, big gains?
"There are people (well, companies) who make money doing roughly what you describe, but not exactly. They're called ""market makers"". Their value for X% is somewhere on the scale of 1% (that is to say: a scale at which almost everything is ""volatile""), but they use leverage, shorting and hedging to complicate things to the point where it's nothing like a simple as making a 1% profit every time they trade. Their actions tend to reduce volatility and increase liquidity. The reason you can't do this is that you don't have enough capital to do what market makers do, and you don't receive any advantages that the exchange might offer to official market makers in return for them contracting to always make both buy bids and sell offers (at different prices, hence the ""bid-offer spread""). They have to be able to cover large short-term losses on individual stocks, but when the stock doesn't move too much they do make profits from the spread. The reason you can't just buy a lot of volatile stocks ""assuming I don't make too many poor choices"", is that the reason the stocks are volatile is that nobody knows which ones are the good choices and which ones are the poor choices. So if you buy volatile stocks then you will buy a bunch of losers, so what's your strategy for ensuring there aren't ""too many""? Supposing that you're going to hold 10 stocks, with 10% of your money in each, what do you do the first time all 10 of them fall the day after you bought them? Or maybe not all 10, but suppose 75% of your holdings give no impression that they're going to hit your target any time soon. Do you just sit tight and stop trading until one of them hits your X% target (in which case you start to look a little bit more like a long-term investor after all), or are you tempted to change your strategy as the months and years roll by? If you will eventually sell things at a loss to make cash available for new trades, then you cannot assess your strategy ""as if"" you always make an X% gain, since that isn't true. If you don't ever sell at a loss, then you'll inevitably sometimes have no cash to trade with through picking losers. The big practical question then is when that state of affairs persists, for how long, and whether it's in force when you want to spend the money on something other than investing. So sure, if you used a short-term time machine to know in advance which volatile stocks are the good ones today, then it would be more profitable to day-trade those than it would be to invest for the long term. Investing on the assumption that you'll only pick short-term winners is basically the same as assuming you have that time machine ;-) There are various strategies for analysing the market and trying to find ways to more modestly do what market makers do, which is to take profit from the inherent volatility of the market. The simple strategy you describe isn't complete and cannot be assessed since you don't say how to decide what to buy, but the selling strategy ""sell as soon as I've made X% but not otherwise"" can certainly be improved. If you're keen you can test a give strategy for yourself using historical share price data (or current share price data: run an imaginary account and see how you're doing in 12 months). When using historical data you have to be realistic about how you'd choose what stocks to buy each day, or else you're just cheating at solitaire. When using current data you have to beware that there might not be a major market slump in the next 12 months, in which case you won't know how your strategy performs under conditions that it inevitably will meet eventually if you run it for real. You also have to be sure in either case to factor in the transaction costs you'd be paying, and the fact that you're buying at the offer price and selling at the bid price, you can't trade at the headline mid-market price. Finally, you have to consider that to do pure technical analysis as an individual, you are in effect competing against a bank that's camped on top of the exchange to get fastest possible access to trade, it has a supercomputer and a team of whizz-kids, and it's trying to find and extract the same opportunities you are. This is not to say the plucky underdog can't do well, but there are systematic reasons not to just assume you will. So folks investing for their retirement generally prefer a low-risk strategy that plays the averages and settles for taking long-term trends." "If they return to their earlier prices Assuming I don't make too many poor choices That's your problem right there: you have no guarantee that stocks, will in fact return to their earlier prices rather than go down some more after the time you buy them. Your strategy only looks good and easy  in hindsight when you know the exact point in time when stocks stopped going down and started going up. But to implement it, you need to predict that time, and that's impossible. I would adopt a guideline of ""sell when you've made X%, even if it looks like it might go higher."" Congratulations, you've come up with the concept of technical analysis. Now go and read the hundreds of books that have been written about it, then think about why the people who wrote them waste time doing so rather than getting rich by using that knowledge." On Black Friday, 1929,the market fell from over 350 to just above 200. If you were following your plan then you would buy in at about 200. But look what the market did for two years after Black Friday.   It went down to about 50. You would have lost around 75% of your capital. "The technical term for it is ""timing the market"" and if you can pull it off correctly, you will do quite well. The problem is that it is almost impossible to consistently do well. If it were that easy there would be a lot of billionaires walking around. Even Wall street experts haven't been able to predict the market that well. This idea is almost universally considered a bad idea. Consider this: When has the stock dropped low enough that you are ""buying low"" and let's say you do buy low and it doubles in a month. When do you get out? What if you are wrong and it doubles again? Or if it drops 10% do you keep waiting? This strategy is rife with problems." Every time you buy or sell a share for some price, somebody must have thought that that was exactly the right moment to sell or buy that share at that price (and to trade with you). Every time a trade is made, both sides think they are doing the smart thing. Most of the time, one will turn out to be wrong, the other right. Nothing in your proposed method of trading explains why you would be the side that was right more often. So they'll probably even out. Or maybe there are people in the market who actually do have a slightly better than average method, and you'll be wrong somewhat more often than right. Each trade has transaction costs. If you simply hang on to your shares, that's more or less the same as evening out good trades and bad trades, but without the transaction costs. The price of a shares reflects the expected future returns of that company. If it does not someone will notice and buy until it does. Look at this chart http://www.finanzen.net/chart/Arcandor (click on max), that's a former DAX company, so one of the largest german companys. Now it's bankrupt. Why do you think you are the only one who is going to notice? There are millions of people and even more computers, some a going to be smarter than you. Of course that does not happen to everyone but who knows. Is Volkswagen going to survive the current crisis? Probably. Is it coming back to former glory in the next half year? Who knows? Here comes the obvious solution: Don't buy single stocks, spread it out over many companies, some will shine, some will plument and you get the average. Oh that's an index, how convinent. Now if there were a way to save on all these transaction costs you're incurring... As an easy way to answer... look at an index, let's say the S&P 500.  Look at the price this last October, and predict where it will move in November... easy right?  It already happened, and you have the benefit of hindsight.  The move looks like such a consistent, obvious continuation of the previous up and down pattern.  It looks predictable, like you could have guessed that.  Now, look at today's price, and predict where it will go next month.  Not so easy now?  The problem is, every point you're at, all the time, looks like a possible inflection point or turning point.  If you're following an uptrend, you may think it'll continue, but you may also think that it zigged so far up already, that now it's ready for a zag down where you'll buy.  So you wait... and it keeps rising, and you kick yourself for missing out.  Next time, you see another uptrend and resolve to buy it regardless, thinking now it'll keep going, but it turns down the second you buy it, and keeps dropping.  You kick yourself again.  The market is amazing at doing this to you every time.  In real time, every wiggle in the price looks simultaneously like a trend that could continue, and like a trend that has moved far enough and is ready to reverse.  And more likely you'll guess the wrong one.   The ONLY way with some little hope of succeeding is to study study study, and find and learn trading rules with just over 50/50 chances (like buying when a moving average is touched within an uptrend as an example, and setting a stop loss at -1%, and a sell limit at +2% or something), and then never ever deviate from that strategy, because your only hope is in the consistency of statistics and odds over time.  You'll get many -1% losses, and hopefully enough 2% gains to compensate the losses, plus some profit.   OR, to make it easier, just buy in on a dip, and hold and hold and collect dividends, and be content to match the market without effort. The stock market's principal justification is matching investors with investment opportunities.  That's only reasonably feasible with long-term investments.  High frequency traders are not interested in investments, they are interested in buying cheap and selling expensive.  Holding reasonably robust shares for longer binds their capital which is one reason the faster-paced business of dealing with options is popular instead.  So their main manner of operation is leeching off actually occuring investments by letting the investors pay more than the recipients of the investments receive. By now, the majority of stock market business is indirect and tries guessing where the money goes rather than where the business goes. For one thing, this leads to the stock market's evaluations being largely inflated over the actual underlying committed deals happening.  And as the commitment to an investment becomes rare, the market becomes more volatile and instable: it's money running in circles. Fast trading is about running in front of where the money goes, anticipating the market.  But if there is no actual market to anticipate, only people running before the imagination of other people running before money, the net payout converges to zero as the ratio of serious actual investments in tangible targets declines. By and large, high frequency trading converges to a Ponzi scheme, and you try being among the winners of such a scheme.  But there are a whole lot of people competing here, and essentially the net payoff is close to zero due to the large volumes in circulation as opposed to what ends up in actual tangible investments. It's a completely different game with different rules riding on the original idea of a stock market.  So you have to figure out what your money should be doing according to your plans. Someone entering a casino with $15 could employ a very simple strategy and have a better-than-90% chance of walking out with $16.  Unfortunately, the person would have a non-trivial chance (about one in 14) of walking out with $0. If after losing $15 the person withdrew $240 from the bank and tried to win $16, the person would have a better-than-90% chance of succeeding and ending up ahead (holding the original $15, plus the additional $240, plus $1) but would have at that point about a one in 14 chance from that point of losing the $240 along with the original $15.  Measured from the starting point, you'd have about a 199 out of 200 chance of gaining $1, and a one out of 200 chance of losing $240. Market-timing bets are like that.  You can arrange things so you have a significant chance of making a small profit, but at the risk of a large downside.  If you haven't firmly decided exactly how much downside you are willing to accept, it's very easy to simultaneously believe you don't have much money at risk, but that you'll be able to win back anything you lose.  The only way you can hope to win back anything you lose is by bringing a lot more money to the table, which will of course greatly increase your downside risk. The probability of making money for the person willing to accept $15 of downside risk to earn $1 is about 93%.  The probability of making money for the person willing to accept $255 worth of risk is about 99.5%.  It's easy to see that there are ways of playing which have a 99.5% chance of winning, and that there are ways of playing that only have a 15:1 downside risk.  Unfortunately, the ways of playing that have the smaller risk don't have anything near a 99.9% chance of winning, and those that have a better chance of winning have a much larger downside risk. "Plenty of good answers here, but probably the best answer is that The Market relies on suckers...er...investors like you.  The money has to come from somewhere, it might as well be you. So-called ""day traders"" or ""short-term investors"" are a huge part of the market, and they perform a vital function:  they provide capital that flows to the large, well-equipped, institutional investors.  Thing is, you can never be big enough, smart enough, well-informed enough, or quick enough to beat the big guys.  You may have a run of good fortune, but over the long term aggregate, you're a PAYOR into the market, not a DIVIDEND reaper." "A lot of people have already explained that your assumptions are the issue, but I'll throw in my 2¢. There are a lot of people who do the opposite of long term investing.  It's called high frequency trading.  I'd recommend reading the Wikipedia article for more info, but very basically, high frequency traders use programs to determine which stocks to buy and which ones to sell. An example program might be ""buy if the stock is increasing and sell if I've held it more than 1 second.""" Playing the markets is simple...always look for the sucker in the room and outsmart him. Of course if you can't tell who that sucker is it's probably you. If the strategy you described could make you rich, cnbc staff would all be billionaires. There are no shortcuts, do your research and decide on a strategy then stick to it in all weather or until you find a  better one. The problem is that short-term trends are really unpredictable.  There is nobody who can accurately predict where a fund (or even moreso, a single stock or bond) is going to move in a few hours, or days or even months. The long-term trends of the entire market, however, are (more or less) predictable.  There is a definite upward bias when you look at time-scales of 5, 10, 20 years and more.  Individual stocks and bonds may crash, and different sectors perform differently from year to year, but the market as a whole has historically always risen over long time scales. Of course, past performance never guarantees future performance.  It is possible that everything could crash and never come back, but history shows that this would be incredibly unlikely.  Which is the entire basis for strategies based on buying and holding (and periodically rebalancing) a portfolio containing funds that cover all market sectors. Now, regarding your 401(k), you know your time horizon.  The laws won't let you withdraw money without penalty until you reach retirement age - this might be 40 years, depending on your current age.  So we're definitely talking long term.  You shouldn't care about where the market goes over a few months if you won't be using the money until 20 years from now. The most important thing for a 401(k) is to choose funds from those available to you that will be as diverse as possible.  The actual allocation strategy is something you will need to work out with a financial advisor, since it will be different for every person.  Once you come up with an appropriate allocation strategy, you will want to buy according to those ratios with every paycheck and rebalance your funds to those ratios whenever they start to drift away.  And review the ratios with your advisor every few years, to keep them aligned with large-scale trends and changes in your life. There are many technical answers above , but the short story to me is that very few active fund managers consistently beat the market. Look at the results of actively managed funds. Depending on whose analysis you read, you will find out that somewhere between 80-90% of fund managers in a given year do not beat passive index funds. So go figure how you will do compared to a mutual fund manager who has way more experience than you likely have. So, that in itself is moderately interesting, but if you look at same-manager performance over several consecutive years it is rare to find anyone that goes beats the market for more than a few years in a row. There are exceptions, but go pick one of these guys/gals - good luck. Getting in and out of the market is a loser. This is because there is no way to see market spikes and down turns. There are many behavioral studies that have been done that show people do the wrong thing: they sell after losses have occurred and they buy after the market has gone up. Missing an up spike and not being in before the spike is as devastating as missing a down turn and not getting out in time. There is another down side, if you are trading in a personal account, rather than a tax deferred account, going in and out of stocks has tax complications. In short, a broad based equity index will, over time, beat about anything out there and it will do it in a tax efficient manner.  Exchange traded funds (ETFs) are a wonderful way to obtain diversification immediately at very low cost. Another benefit of holding shares longer was just pointed out in another question: donating appreciated shares to a nonprofit may avoid the capital gains tax on those shares, which is a bigger savings the more those shares have gone up since purchase.
When you buy a property the house or the building goes down in value every year (it gets depreciated) similar to when you drive a new car out of the lot. However, it is the land that increases in value over time. As land becomes scarcer the value of land in that area will increase in value, as does land in sought after areas. If more people want to live in a particular suburb the land value will keep on increasing year after year. Sometimes established areas with houses built in the 1980s or even earlier can be worth much more than newly built areas. It comes down to the supply and demand of land and houses in a particular area. You might even get a situation where a run-down dilapidated house in a very sought after suburb sells for more than a brand new house in a less sought-after suburb nearby. Properties can be a very good investment and they can be a very poor investment. It can largely depend on the decisions you make in buying your investment property. The first thing you need to make a decision on is the location of the property. If you buy a property in a good area that is well sought after you can make good capital and rental returns over the long run. If you buy poorly in an area no one wants to live in then you might have problems renting it out or only be able to rent it out to bad tenants who cause damage, and you may not get any capital gains over many years. The second thing you need to decide on is when in the property cycle you buy the property. If you buy at the right time you can get higher rents and make some quick capital gains over a relatively short time. I can provide a personal example of this situation. I had bought a house (in Australia) in 2007 for $240,000 at a time when interests where at their highest (9%), no one was buying property and rents were on the increase (with low vacancy rates). Today, eight years after, we are getting $410 per week rent and the house next door (in worse condition than ours) has been put on the market asking for between $500,000 to $550,000 (most houses in the area had been selling during this year for over $500,000). So you can say that our house has more than doubled in 8 years. However, up to a few months ago houses were selling within 2 weeks of being listed. The house next door however, has been listed for over a month and has not had very much interest. So from this you can conclude that in 2007 we had bought near the bottom of the market, whilst now we are near the top of the market. What you also need to remember is that different areas of a country can have different cycles, so there is not just one property cycle but many property cycles in the same country. No, it's not all long-term capital gain.  Depending on the facts of your situation, it will be either ordinary income or partially short-term capital gain.  You should consider consulting a tax lawyer if you have this issue. This is sort of a weird little corner of the tax law.  IRC §§1221-1223 don't go into it, nor do the attendant Regs.  It also somewhat stumped the people on TaxAlmanac years ago (they mostly punted and just declared it self-employment income, avoiding the holding period issue).  But I did manage to find it in BNA Portfolio 562, buried in there.  That cited to a court case Comm'r v. Williams, 256 F.2d 152 (5th Cir. 1958) and to Revenue Ruling 75-524 (and to another Rev. Rul.).  Rev Rul 75-524 cites Fred Draper, 32 T.C. 545 (1959) for the proposition that assets are acquired progressively as they are built.  Note also that land and improvements on it are treated as separate assets for purposes of depreciation (Pub 946). So between Williams (which says something similar but about the shipbuilding industry) and 75-524, as well as some related rulings and cases, you may be looking at an analysis of how long your property has been built and how built it was.  You may be able to apportion some of the building as long-term and some as short-term.  Whether the apportionment should be as to cost expended before 1 year or value created before 1 year is explicitly left open in Williams.  It may be simpler to account for costs, since you'll have expenditure records with dates. However, if this is properly ordinary income because this is really business inventory and not merely investment property, then you have fully ordinary income and holding period is irrelevant.  Your quick turnaround sale tends to suggest this may have been done as a business, not as an investment. A proper advisor with access to these materials could help you formulate a tax strategy and return position.  This may be complex and law-driven enough that you'd need a tax lawyer rather than a CPA or preparer.  They can sort through the precedent and if you have the money may even provide a formal tax opinion.  Experienced real estate lawyers may be able to help, if you screen them appropriately (i.e. those who help prepare real estate tax returns or otherwise have strong tax crossover knowledge). "First, let me say that $1000 is not that much of amount to invest in stocks. You need to remember that each transaction (buy/sell) has fees, which vary between $4-$40 (depending on the broker, you mentioned Scottrade - they charge $7 per transaction for stocks and about twice as much for some mutual funds). Consider this: you invest $1000, you gain $100. You'll pay $15 in fees just to buy/sell, that's 1.5% expense ratio. If you invest in more than 1 stock - multiply your fees. To avoid that you can look into mutual funds. Different brokers offer different funds for free, and almost all of them carry many of the rest for a fee. When looking into funds, you can find their expense ratio and compare. Remember that a fund with 1% expense ratio diversifies and invests in many stocks, while for you 1.5% expense ratio is for investing in a single stock. Is it a good idea to invest only in US or diversify worldwide? You can invest in the US, but in funds that diversify worldwide or across industries. Generally it is a good idea to diversify. I am 28. Should I be a conservative investor or take some risks? Depends on how bad of a shape will you be if you lose all your principle. What online brokerage service is the best? I have heard a lot about   Scotttrade but want to be sure before I start. It seems to be the   least expensive and most user-friendly to me. ""Best"" is a problematic term. Scottrade is OK, E*Trade is OK, you can try Sharebuilder, Ameritrade, there are several ""discount"" online brokers and plenty of on-line reviews and comparisons amongst them. What is a margin account and how would it affect my investing? From   what I understand it comes into play when an investor borrows money   from the broker. Do I need to use it at all as I won't be investing on a big scale yet. You understand right. There are rules to use margin accounts, and with the amount you have I'd advise against them even if you get approved. Read through the brokers' FAQ's on their requirement. Should I keep adding money on a monthly basis to my brokerage account   to give me more money to invest or keep it at a certain amount for an   extended period of time? Sharebuilder has a mechanism to purchase monthly at discounted prices. But be careful, they give you discounted prices to buy, but not to sell. You may end up with a lot of positions, and the discounts you've gotten to buy will cause you spend much more on selling. Generally, averaging (investing monthly) is a good way to save and mitigate some risks, but the risks are still there. This is good only for long term savings. How should my breakdown my investments in terms of bonds vs stocks? Depends on your vulnerability and risk thresholds." Here are three key factors that you do not explicitly state: So while I cannot say exactly why the tax law is the way it is, I can infer that it encourages long-term investments rather than short-term, which would seem to be a good thing for society overall.  The fast that capital gains are taxed at all somewhat discourages cashing out investments (although I suspect it's more of a nuisance factor - the cash received is likely more on an incentive that the tax is a disincentive). Buy and hold doesn't have an exact definition, as far as I know.  In my opinion, it's offered as a contrast to those who trade too frequently, or panic every time the market drops 2%.  For the general market, e.g. your S&P index holdings. You sell to rebalance to your desired asset allocation. As a personal example, at 50, I was full up invested, 95%+ in stocks. When my wife and I were retired (i.e. let go from company, but with no need to go back to work) I started shifting to get to a more sane allocation, 80/20. The ideal mix may be closer to 60/40.  Also, there are times the market as a whole is overvalued as measure by P/E and/or CAPE, made popular by Nobel Prize winning Robert Shiller. During these times, an allocation shift might make sense.  For the individual stocks, you had best have a strategy when you buy. Why did you buy XYZ? Because they had promise, decent company with a good outlook for their product? Now that they are up 300%, can they keep gaining share or expand their market? Sometimes you can keep raising the bar, and keep a company long term, really long. Other times, the reason you bought no longer applies, they are at or above the valuation you hoped to achieve.  Note - I noticed from another question, the OP is in the UK. I answer this my from US centric view, but it should still apply to OP in general. The question was not tagged UK when I replied. What you are suggesting would be the correct strategy, if you knew exactly when the market was going to go back up. This is called market timing.  Since it has been shown that no one can do this consistently, the best strategy is to just keep your money where it is.  The market tends to make large jumps, especially lately.  Missing just a few of these in a year can greatly impact your returns.  It doesn't really matter what the market does while you hold investments.  The important part is how much you bought for and how much you sold for.  This assumes that the reasons that you selected those particular investments are still valid.  If this is not the case, by all means sell them and pick something that does meet your needs. There's really not a simple yes/no answer.  It depends on whether you're doing short term trading or long term investing.  In the short term, it's not much different from sports betting (and would be almost an exact match if the bettors also got a percentage of the team's ticket sales), In the long term, though, your profit mostly comes from the growth of the company.  As a company - Apple, say, or Tesla - increases sales of iPhones or electric cars, it either pays out some of the income as dividends, or invests them in growing the company, so it becomes more valuable.  If you bought shares cheaply way back when, you profit from this increase when you sell them.  The person buying it doesn't lose, as s/he buys at today's market value in anticipation of continued growth.  Of course there's a risk that the value will go down in the future instead of up. Of course, there are also psychological factors, say when people buy Apple or Tesla because they're popular, instead of at a rational valuation.  Or when people start panic-selling, as in the '08 crash.  So then their loss is your gain - assuming you didn't panic, of course :-) Consider the price history to be the sum of short term movements and long term movements. If you hold a stock for a long time you will benefit (or lose) from its long term movement.  If a sufficiently large and very good short term trader existed he would tend to reduce short term volatility, eventually to nearly zero. At that point, the price would rise gently over the course of the day in line with the long term variation in price. Presumably robot traders will increase the time horizon of their trades when they have exhausted the gains they can make from short term trades.