Holding Period

The holding period matters for measuring returns and for tax. Returns are often compared over a holding period, and longer returns are usually converted to an annual rate so they can be compared fairly.

In many tax systems, the holding period determines how gains are taxed. In the United States, for example, gains on assets held for more than one year are generally taxed at lower long-term capital gains rates than those held for a year or less. Some countries offer reduced rates or exemptions after longer holding periods.

For example, an investor who buys shares on 1 March and sells them on 1 September of the following year has a holding period of 18 months.

Holding periods also matter in other rules, such as the minimum holding period for dividends to qualify for favourable tax treatment, and in fund rules that may charge fees for selling within a short time. An investor's intended holding period, or investment horizon, affects which investments are suitable.