Long Term

Long term investments are those that have an extended period of asset hold. The time of hold depends on the asset type and can vary from one year up to 30 years, but usually ranges from 7 to 10 years.

Long Term explained

Long term investments have numerous features.

There is no need to constantly monitor the state of the market. In this case, it is the financial goals set with a long-term perspective that matter. Current situations do not require much attention. This contributes to a significant saving of investor's time.

Absence of stressful situations. If speculation is based on trading which requires quick reaction, then long term investments require calm assessment of prospects of asset growth.

Possibility of stable income. Trading allows you to earn only on the difference of quotations. Profits from long term investments are derived from capital appreciation and regular payments, such as share dividends or bond coupons.

Long term investing tools

There are many options for long term investing. The most suitable instruments for this purpose are listed below.

Long term bank deposits. They are characterized by high reliability. The deposit insurance program guarantees the return of invested funds. But the interest on deposits is small. Therefore, bank deposits are suitable for storing money, but not for earning.

Bonds. This is the second most reliable tool after deposits. Additional income can be paid to the investor in the form of a coupon. Federal Loan Bonds are considered the most reliable.

Shares. This asset is characterized by higher volatility, but in the long term it does not matter much. Current quotes do not have a significant impact on the final result when investing for a long period. Investors profit from the growth in the value of the asset, as well as in the form of dividends. To make investments effective, it is recommended to buy shares of reliable issuers with high yield.

Real estate. This is one of the most reliable instruments. Income is generated by growth in the value of real estate and rents. Real estate investments require a lot of capital and take a long time to pay off.

Investment funds ETFs. The owner of capital receives income proportional to the share of his contribution. Funds are managed by fund specialists. A commission is charged to the depositor for servicing.

Precious metals. This instrument is highly reliable and is often used as insurance in case of unforeseen situations, such as market downturns, etc.

Estimated yields

The average annual return on long term investments, as a rule, exceeds that of short-term investments. Financial crises, negative economic factors, and political events affect the stock market and contribute to its temporary decline. But later the situation usually normalizes and in most cases is not reflected in the result of investment.

Investor's risks

Long term investments are associated with several types of risks. It can be difficult to predict the state of the economy for several years ahead. That is why it is not easy to calculate the efficiency of investments in the long term.

The main risks when investing over the long term are the following.

Loss of capital. This is especially relevant at the initial stages of activity. The reason may be the lack of knowledge in this area and lack of skills in asset management.

Long payback period. There is a possibility that the funds invested will not bring profit for a long time. Additional expenses may also be incurred to maintain the project.

There is no guarantee of income at the end of the investment period. It is difficult to make accurate forecasts for several years ahead, so the result may not be not the same as expected by the investor.

Inflation is a negative economic factor that increases the risks of long term investments. With a high rate of inflation, income may be as well less than expected.