The most important reason for taking a medium to long-term approach in US stocks — taxes!
Profits from US stocks are subject to capital gains tax. The long-term capital gains tax rate (for holdings over one year, 0%—20%); the short-term capital gains tax rate (for holdings less than one year, aligns with regular income tax rates, 10%—37%).
There is another very interesting rule in US stocks — the wash sale, which is a tax-saving method.
It has two conditions that must be met simultaneously, known as the two 30-day rules.
First, you need to hold a stock for more than 30 calendar days; then, after selling the stock at a loss, you must wait for more than 30 calendar days before buying it back and generating a profit. By doing so, you successfully activate the tax avoidance feature of the wash sale rule, allowing the earlier losses to offset the subsequent profits.
For example: Assume you bought 100 shares at 10 dollars per share, spending a total of 1,000 dollars, and held them for over 30 days. Then, due to a drop in the stock price, you decided to sell at 5 dollars per share. This transaction resulted in a loss of 5 dollars per share, or 500 dollars in total. Next, after waiting for more than 30 days, the stock price continued to fall to 2 dollars, and you decided to repurchase 100 shares of the same stock for 200 dollars. After holding it for another 30 days, the stock price rose back to 10 dollars, and you sold your 100 shares. In this second transaction, you made a profit of 800 dollars.
Originally, you should have paid capital gains tax on the 800 dollars. However, since you met the conditions for wash sale losses, the taxable profit becomes 800 minus 500, which equals 300 dollars...