JUN 3, 2020 By : ATHUL RAJEEV, VENTESKRAFT
In this blog we will go through about long term investing. It’s an account in the balance sheet of a firm’s money market. That represents the investments made by the company, including stocks , bonds , real estate and cash. Long-term investments are assets that a company plans to hold for over a year. The long term investment account is largely different from the short-term investment account in that short-term investments are most likely to be sold, whereas long-term investments will not be sold for years, and may never be sold in some cases.
Being a long term investor means you are ready to accept a certain amount of risk in pursuit of potentially higher rewards and you can afford to be patient for a longer period of time. It also means you have enough money at your fingertips to continue to tie up a fixed sum for a long time.
A common form of long term investment occurs when company A invests mostly in company B and gains considerable control over company B without possessing a majority of the voting shares. In this case it will display the market price as a long term investment.
Long Term Investment Options
Following are few of the options that are available for you to make long term investments:
- Equity Shares
- Mutual Funds
- Post Office Saving Schemes
- Bonds and Debentures
- Public Provident Fund
- Life Insurance
- Real Estate
- National Saving Certificates
- Fixed Deposits
BENEFITS OF LONG-TERM INVESTING
One of the main concerns for any type of investing is market volatility. Volatility measures the degree to which prices change over time. Another way to think of volatility is in terms of price swings. The greater and more frequently an investment’s price swings, the higher its volatility. Investments with high volatility have a high degree of risk because their prices are unstable.
It is important to note that short-term volatility is not necessarily indicative of a long-term trend. A security can be highly volatile on a daily basis but show long-term patterns of growth or stability. Some investments may maintain purchasing power over time, but can fluctuate wildly in the short term. Many people panic when they see reports of a falling stock market. However, staying invested in the market over the long term has historically paid off. Although short-term fluctuations seem random. The stock market tends to reflect the overall growth and productivity of the economy in the long run.
Putting your money in long-term rather than short-term investments also provides tax advantages on capital gains. Often long-term gains (those held over 12 months) are taxed at rates below your income tax bracket. Short-term gains, on the other hand, are taxed as regular income.
WHY LONG TERM INVESTING IS IMPORTANT
Long term investing is found in the relationship between volatility and time. long term investments demand a high level of commitment, discipline, effort and time but the result is worth the wait. Experts advise you to make long term investments as they help you to remain focused and disciplined and provide you with higher profits as compared to short term investments. Investments held for longer periods tend to exhibit lower volatility than those held for shorter periods. The longer you invest, the more likely you will be able to weather low market periods. Assets with higher short-term volatility risk (such as stocks) tend to have higher returns over the long term than less volatile assets such as money markets.It is very difficult and risky to time the market.
It might also save you other expenses. Such as transaction costs from active trading. Certain mutual funds may defer sales charges if you hold your shares for a long period.There are many reasons for you to invest for the long term. Saving for retirement or a college education, for a future house, or to provide funds for the long-term care of your parents are all common goals of long-term investing.Once you decide to become a long-term investor, you’ll need to choose some investments and strategies based on your risk tolerance and desired returns investments such as growth stocks and long-maturity bonds as well as strategies such as buying and holding, and tax sheltering.
Finally, before you decide to make a long-term investment, you must keep in mind that along with its benefits come the drawbacks of limited liquidity and increased business risk.