Long-Term Investments: What they are and how to invest in them
Long-term investments are assets, intended to be held for over a year. They are accounts on the asset side of a company’s balance sheet, which represent the company’s investments, such as bonds, stocks, cash and real estate.
Long-term investments are assets, intended to be held for over a year. They are accounts on the asset side of a company’s balance sheet, which represent the company’s investments, such as bonds, stocks, cash and real estate.
While short-term investments, have more to do with capital preservation, and are more likely to be sold, long-term investments are not sold for a number of years, and they have to do with wealth creation instead.
Long-term investors are usually patient for a long time, and are always willing to condone a certain risk level, while pursuing higher rewards. Depending on the manner of involved security, a long-term asset could be held for a period of one year to thirty years, and above.
For individual investors, the holding time is said to be at seven to ten years, although this is not an absolute rule.
Long-term Investments are also described as non-current assets. These are investments for which their full value will not be realized during the accounting year, and are not used in operating activities for revenue generation.
There are several types of Long-term Investments. Some of them include; stocks, long-term bonds, mutual funds, exchange funds, and real estate.
Stocks
They are commonly referred to as the primary long-term Investments, and they represent ownership in an organization. Shareholders invest in stocks, expecting that the company’s growth continues and the prices of their shares increase.
Stocks can be a fantastic source of wealth, but it is necessary that one knows the Dos and Don’ts of stock investment.
This is because stocks, also referred to as shares and equity, come with an uncommon high risk level, due to the fact that they are directly affected by the economy, the company’s preference, and politics.
Bonds
Purchasing bonds is synonymous to lending one’s money to a company, organization or government entity. With the money, they are able to carry out important tasks, while you’re able to make money through the incurred interest once they pay you your money.
Bonds can be bought or sold on the secondary market, either at a higher or lower price depending on the interest rates. If the interest rates decrease, the bond’s price increases, and if the rates increase, the prices decrease.
Bondholders receive interest payments on a regular basis, and also receive the Bond’s face value when it is redeemed.
Real Estate
This usually ranks alongside stocks as best long-term investments. Since the Second World War, real estate has brought about returns similar to stocks.
There are various ways of investing in real estate, and they are; buying your own home, investing in rental real estate, and real estate investment trusts.
Other types of long-term Investments are exchange-traded funds and mutual funds. Long-term Investments are popular for their benefits. These benefits include;
• Removing emotions from the equation
• Easy to venture into
• Lower risks involved
• Low costs involved, etc.
Long-term investments facilitate wealth creation and for one to profitably venture into them, one has to have a detailed knowledge of the form of investment and the tactics to be employed.