What is one of the benefits of holding an investment for over a year rather than selling it sooner?

Holding an investment for over a year offers the advantage of capital gains being taxed at a lower rate. This is due to the fact that tax codes in many jurisdictions differentiate between short-term and long-term capital gains. Short-term capital gains, which apply to assets held for one year or less, are typically taxed at ordinary income tax rates, which can be significantly higher. Meanwhile, long-term capital gains, applicable to assets held for more than a year, often benefit from reduced tax rates, recognizing the investment’s longer duration.

This tax treatment encourages long-term investing and helps investors retain more of their returns, thereby increasing the overall profitability of their investments. By understanding this benefit, investors can make more informed decisions regarding their investment strategies and timelines.