Long-term investments are assets that any individual holds on to for at least three years. Long-term investment plans typically include assets like stocks and real estate. These investments take on a greater amount of risk to deliver higher returns. Read to learn more about the different types of long-term investments.
What is a Long-Term Investment?
Long-term investments are held for at least three years or more. Long-term investments offer greater returns when held for a longer time. Long-term goals are catered towards post-retirement goals, real estate and higher education expenses.
Investing is akin to a game of football. You need discipline, sound strategy, planning, determination and grit to achieve your goals. You need to win in little feats throughout the ninety minutes to stand successfully at the end of the game.
You may want a sound retirement corpus or accumulate funds for your own higher education or just hedge against inflation. For all of these goals, long-term investing is your best option.
What is an example of a Long-Term Investment?
A long-term investment is suitable for an investor who has an investment horizon of at least 10 years. Considering short-term fluctuations are not threatening enough over long periods, long-term investors should be willing to increase their risk horizon to earn higher returns over time.
As an investor reaches their financial goal, they should decide where their assets must be distributed to attain stable, non-risky returns. For example, if you are approaching your mid-30s and are saving for your first land purchase, you would assess if stocks would be your best bet versus bonds or mutual funds.
Benefits And Advantages of a Long-Term Investment Plan
1. Time Effective
Long-term investment is time effective and does not require intensive research to get started. Additionally, if you find the right investments, you can deploy a set-it-and-forget-it to automate your investments.
2. Cost Saving
If you're an infrequent trader, you can buy and hold in a lump sum to reduce associated commissions.
3. Tax Saving
Specific accounts used for long-term investments come with tax savings. This allows for greater compounding as time passes.
4. Compound Interest
Long-term investors can experience compound interest on their investments. Reinvesting capital gains can allow one to buy additional instalments of the asset which creates further exponential growth.
5. Risk and reward horizon
Investing over time and using the dollar-cost principle helps iron out short-term volatility in the market.
6. Wealth Creation
If you want to create wealth, you need to consider a long-term investment. There could be fluctuations in your investments in the short term due to stock market volatility, but you will gain in the long term with the rise in the market price of your investments and dividend income.
7. Can Ignore Short-Term Fluctuations
Long-term investors don't have to worry about short-term fluctuations in the stock market. You can let your investments grow, create wealth, and achieve your long-term financial goals.
8. Can Ignore Short-Term Fluctuations
Every time you buy and sell your investments, you incur transaction fees like a brokerage. There are no capital gains on the sale of stocks and shares, so you save on taxes too. Stocks and shares are on the exempt list of capital gains.
Principles to Remember Before You Invest for Long Term
Consider these principles before you start investing in the long term.
1. Map your investments to your goals
Map out your investments to your personal financial goals. Along with this, map out your risk and reward horizon as well. Investments and asset classes are on the spectrum of conservative to risky. Treasuries are considered conservative while more volatile assets subject to market movements like equities are considered risky.
2. Don't put all your eggs in one basket
When investing for the long term, you should invest your money in a diverse set of assets. You can diversify your portfolio across subcategories in asset classes as well. Asset allocation does not negate the risk.
3. Don't time the market
Timing the market is when one moves their money in and out of a certain asset to capture highs and avoid losses. This is risky and even the most experienced investors find themselves in a pickle when they try to time the market. A safer strategy is to practice dollar-cost averaging irrespective of market movements.
4. Track your progress
Take time out periodically to rebalance your portfolio. Ensure your asset allocation is balanced to cater to market movements. You should move money between assets if your current investment strategy is not working for you. Additionally, account for greater life events such as marriage or children. This would determine the level of risk you're willing to take with your investments.
10 Best Long-Term Investments Plans For 2022
Stocks and equities are usually the first things that strike any potential investor's mind. Stocks are usually short-term but are looked at as a long-term investment plan as they gain value over time
Bonds can be purchased by an investor from companies or the Government. Bonds are low-risk investments. Ensure you choose bonds that correspond to your investment goals and your timeline.
3. Mutual Funds and ETFs
Mutual Funds and ETFs or exchange-traded funds are similar to equities. These assets are packaged portfolios. Individuals can pool funds and invest in a certain fund manager's holdings. Money is distributed and invested across several companies. This is a beginner-friendly investment.
4. Real Estate
Real estate is a very trustworthy alternative source of income to provide passive income. Real estate increases in value as time passes. This asset also provides a series of alternative exit options for long-term investments.
5. Certificate Of Deposit
A Certificate Of Deposit or CD is collateral you receive in exchange for bank money. A CD indicates the amount you've invested, your interest rate and the specified period you've chosen. The duration of your CD will indicate the interest you earn.
6. Dollar Investments
Investing in dollars refers to purchasing US dollar. Pillow is a savings app that allows you to virtually save your funds in dollars while earning daily passive income. You can deposit funds with Naira and earn up to 14% annual interest on your deposit.
7. Agriculture and Livestock Investment
The agriculture sector in Nigeria is critical to the economy's growth and development. The Government is diversifying different investment options in this sector to attract investors. You can invest in firms that produce crops or tame livestock if you want to refrain from engaging in direct agriculture.
8. Dividend Stocks
Dividend stocks are those stocks which make periodic distributions to their shareholders. These are sources of passive income and can be used to increase wealth for long-term investors.
9. Value Stocks
A value stock refers to shares of a company that trade at a lower price concerning its fundamentals. These include earnings, sales and dividends. They are usually looked at as a contrast option to growth stocks.
10. Pension and Retirement Schemes
There are Government approved pension and retirement schemes that offer you a sizable amount of interest to attain the specific long-term goal of saving for retirement.
Short-Term vs. Long-Term Investment? Which is Better?
There is no correct answer for which type of investment is better. If you have more short-term goals, you would want to lower your risk appetite and invest in assets that allow you to achieve your short-term goals. Similarly, long-term goals can leverage a greater risk tolerance for greater rewards.
The choice of which one suits an investor depends on one’s personal goals.
Is It a Good Time to Invest in Dollars for the Long Term?
Yes, you can invest in Dollars for the long term. Pillow is a savings app that allows you to virtually save your funds in dollars while earning daily passive income. You can deposit funds with Naira and earn up to 14% annual interest on your deposit.
When investing for the long-term, short-term market fluctuations should not phase you. Ensure you have mapped your financial goals for at least 3 years and deployed them in the assets that suit your risk appetite. Focusing on a buy-and-hold approach is key to attaining your long-term goals at the right time.
1. Where should a beginner invest?
A beginner should invest in assets such as mutual funds and dividend stocks when starting. These assets do not require too much investment in terms of research. Additionally, they offer ample returns to hedge against inflation.
2. Should I invest long-term or short-term?
You should invest in long-term and short-term assets based on your personal financial goals, and risk tolerance along with the rewards you are comfortable receiving.
3. How can I grow my money?
You can grow your money and build wealth by investing in different types of assets. Diversification of your portfolio and exposure to multiple asset classes can put you on the path of greater return on investment.
4. What is the safest investment right now?
If you are looking for safer investments, you may not have a high-risk appetite. You can explore bonds, dollar investments, treasury bills and ETFs if you are a cautious investor.
5. Is Dollars a good investment?
Yes, Dollars is a good investment. Saving in dollars for Nigerians can provide protection against the fluctuations of the Nigerian Naira, as well as access to a widely-used and widely-accepted currency.