Long Term Investments – Concept, Benefits, Assets, Holding Period, Tips & moreLast Updated Date: May 10, 2022
In this article, we’ll talk about the most critical topic, i.e., Long Term Investment. It’s the right way that both new and experienced investors can opt to excel in their journey in the trading sector.
Every person dreams of living a stress-free and comfortable life. Especially after retirement, people want to spend their life on their own without depending on anyone.
For this, you also put extreme efforts; you do jobs, and also choose to invest your savings, i.e. purchase stocks, or invest in mutual funds. So you can live an independent life in the future.
However, it’s a harsh reality that you can’t hit the jackpot within a day. Everyone wants to take their condition from rags to rich.
But, you must have the patience for this if you want to achieve something, especially if your hopes are high from the trading sector, and you want to multiply your money. Of course, long term investment will be the best option for you.
For most of us, earning isn’t a quick buck. But, if you are taking a clever move right from the beginning with patience, it doesn’t remain that much difficult to achieve that big buck.
What is Long Term Investment?
The long term investment is simple to understand. It’s quite similar to any other investment with a little distinction.
Suppose A company is willing to invest in B company in a large amount for the long term.
It’ll be identified that the long term investment has been made by company A in company B. Here stockholders don’t have access to the voting shares.
Though individual investors can also hold purchased assets for a long time, it doesn’t matter at all whether you are an individual investor or a company.
For a long term investment, you can choose to invest in mutual funds, stocks, shares, securities, etc.
The minimum time period for a long term investment should be more than a year. Investment less than a year doesn’t come in the long term investment’ category.
Mostly traders invest their money for more than 3, 5, or 10 years as a long term investment.
However, while purchasing shares and bonds of a company, it becomes equally vital for a Investor to first clarify some vital implications.
Identify Increased Value of Assets
It’s tricky to identify the increased value of the assets. Only when the item is sold, the profit earned from it comes to light.
Similarly, these little things can hugely impact the balance sheet and income statement of a company or individual.
So make sure the purchased assets are appropriately valued as a ‘real short term or a long term investment’ in the balance sheet.
Impact on Short Term Assets Price
Market’s ups and downs can easily impact the short term assets price. Hence, a trader can see a decline in the asset’s price and incur a loss at any time.
That’s why you need first to perceive whether your investment is of short term or long term.
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Is Long Term Investment Safe?
Most people share the concern that this investment is risky.
Of course, it’s risky; even though you invest for a long or short term, there will be a certain degree of risk linked to it. Still, spending your amount for a long term investment is always worth it.
Suppose you review the stock market 5 to 10 years back. You’ll see that despite downfalls, the market has recorded significant growth. It’s happening year to year.
But, it doesn’t mean that you leave caring for your money invested in a long term asset. You should have an overview of it from time to time as companies go fraudulent in a few cases.
In such situations, people lose their entire money within one shot. So make sure you don’t stick to such issues. It’s much better to ask experts for advice.
Should I Start Long Term Investments?
Long term investment has a huge potential that it can transform your small investment into a big billion jackpot. It only seeks your patience, and after some years, you get amazed.
Still, you’ll have to choose the right port for investment. You’ll have to make a well-informed decision before going ahead.
A wise decision will be able to fulfill your requirements in the future. Let’s understand it better through the information given below.
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How Long should you Hold your Investments?
In simple words, you can hold investments “as long as you can” as there’s no restriction on the trader.
Still, you should come forefront with an extensive long term vision if you want to enjoy a big corpus. Though, if you want to invest in debentures, holding for the long term isn’t essential.
On the other hand, if you invest in equity, it becomes mandatory to hold the investment for the long term. At least invest for 5 to 7 years in order to avoid the risk of losing money in equity.
Higher return can provide you a big feast of corpus if you hold the investment for the long term. Let’s understand more about corpus in the next section.
In-depth About Long Term Holding
It is difficult to predict the right time for a long term holding. Still, if you are ready to give your assets ample time, you can earn more returns out of your expectations in the future.
The major reason lies in the corpus that grows bigger as the interest rate gets added to your investment. It keeps becoming a part of the sum-total of your invested amount.
In a nutshell, suppose A trader Invests Rs 80,000 in an asset for a long term at a 14.87% interest rate per annum.
If he holds the investment for the course of five years, he multiplies his invested amount. Let’s split the discussion into three segments.
First Segment: Under the first segment, if an investor holds his Rs.80,000 investment for up to 15 years, his invested amount grows bigger to Rs.6,40,000.
Second Segment: Here the investment grows bigger as the corpus grows bigger. Suppose if that same investor is ready to give its asset 30 years more.
It’ll make the corpus to grow bigger in size as within these years; his Rs.80,000 invested amount will become Rs.51,00,000.
However, in most instances here, investors withdraw their money as it seems a sufficient amount to them.
Third Segment: If a trader has a little more patience to wait five years more, he can actually take its few thousands amount in crores.
Why Investors opt for Long Term Investment?
When it comes to the benefits of long term investment, surprisingly, there’re many. But, if you genuinely want to make big bucks, always remember that time is money.
It is worth more than anything in the world. Profits from long term investment follow the same principle. Your one-time decision can give you immense satisfaction in the future.
Time is the king, and everyone knows it but hardly a few pay attention to it. But those who genuinely care for it always achieve success even though we take it in a general life example or a professional one.
The time you’ve invested is double important as the amount you’ve invested over there.
Investors who remain too much busy in their general life opt for long term investment. It can help them earn substantially high profits as they hold stocks of a company for a long time.
Power of Compounding
For new investors, who’ve recently stepped into the market, compounding might seem to be a big jargon. But it isn’t the right thing to give it a shady spot in the market.
The power of compounding is well noticeable. It can provide you with excellent results, especially in the long term scenario.
But, if you want to achieve successful results out of it, you should start investing earlier. In the end, you’ll be amazed after seeing the high returns.
In most cases, investors make some common mistakes while investing. Especially new investors repeat the mistakes as they don’t have full-fledged knowledge in investments.
Under long period investment, investors get time to keep an eye on the market’s rising and declining phases.
Long-term investment provides investors more options to maximize their returns. If amid the journey, they encounter any error, plenty of time is available to rectify it.
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Which are the Best Long Term Investment Options?
Not all long-term investments can provide you the desired return. Before putting your entire money in something, you should know which asset to pick.
Suppose, A has started depositing his savings in Bank’s Fixed Deposit at 7% return per annum.
If A holds his FD for a year, he will get the 7% return. But if he holds his FD for a long time (suppose for five years), he’ll get only a 7% rate of return.
On the other hand, if A invests in an equity mutual fund, he could generate double income than FDs.
Under equity mutual funds, a trader can earn a 15%+ return per annum. Though, the return can also grow higher if a trader holds the investment for a longer time.
Here, you’ve got a clear idea of what type of assets you should buy for a profitable long-term investment. Now, let’s discuss further the best options for long term investments.
After finding long term investment a better option, the next question that strikes in our mind is, where should “I” invest?
However, it all depends on your knowledge, experience, and goal. There’re plenty of options to enjoy the big feast of return from a long term investment.
Buying stocks is undoubtedly the best option for investment for a long interval.
Surprisingly, mostly stocks come to provide you with a higher return, but before you move ahead, make sure you grasp decent knowledge.
Blue Chip stocks, Growth Stocks, and Dividend Stocks are quite famous for the long-term holdings.
Equity Mutual Funds
You probably have heard about the mutual funds from many of the folks around you. Possibly, you might have got an idea about investing in Mutual Funds through TV ads.
However, it’s a relatively better option than investing in stocks. You can get a high return, and the best thing is, you do not need to review everything on your own.
A manager or expert will handle your funds against fee or commission, and you only enjoy higher returns.
Exchange-Traded Funds, also called ETFs, in particular, are hybrid mutual funds or stocks.
That’s why, if you are looking for investment in both stock and funds, you can think about investing in ETFs.
National Pension System
In short, NPS is a governmental launched scheme in India. It’s the best pension scheme for Indian residents who don’t come under the government’s pension plan.
Therefore, these people get a chance to plan their retirement with the help of NPS.
It’s one of the most straightforward ways for investment for the long term. Real estate is the most profitable market. One can enjoy a higher return.
But it may require a big investment from your pocket. Therefore, if you have an ample amount to invest, you can think about investing in a real estate project.
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Quick Tips on Long Term Investment
Here are some Tips for Long Term Investment which you should consider –
- Align your financial goal and make a clear vision and stick to it
- Start investing early as soon as possible to get the advantage of compounding.
- It’s best to invest in equity funds, cause higher returns.
- No need to worry if you don’t have ample capital for investments, choose SIP and go-ahead
- Try now to withdraw money from time to time or avoid an emergency fund.
- Keep reviewing your investments if you don’t want your money to vanish.
Conclusion – Long Term Investments
In the end, the thing that matters a lot is the right step that you should take to secure your future. If you follow a busy life schedule, then, of course, you should start investing your money for the long term.
Initially, you’ll have to follow a strategy and undertake lots of essential steps. Still, if you have no idea about investment, don’t forget to seek financial experts’ help.
You’ve plenty of options to choose from for a long term investment. But you should only move ahead on the basis of your financial goals.
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