What Is Long-Term Investment ?
Long-term investing refers to buying and holding financial assets such as bonds, real estates, stocks, retirement funds, ETFs etc. for a long period (generally 5 + years) with the aim of generating higher returns and sustained growth over the long term.
Key Characteristics Of Long-Term Investing
- Investments are held for several years (generally 3 to 30 years)
- It gives focus on long-term capital growth and stability
- It is less affected by short term market fluctuations
- It requires emotional discipline and patience
- Less liquidity and flexibility than short term investment
Pros Of Long-Term Investment
The main benefits or advantages of long-term investing can be described as follows:
1. Less Risky
Long-term investing avoids short term market volatility, therefore it involves lower level of risk than short-term investment option.
2. Benefit Of Compound Interest
Another notable advantage of long-term investing is that traders can reinvest earnings that generate more profits increase returns over time.
3. Less Transaction Costs
Long-term investing involves fewer transactions (trades) than short-term investing strategy that reduces brokerage fees, commission and transaction charges that increases the profitability
4. Tax Advantage
Investors can enjoy more profit because long-term capital gain tax rates are lower than short-term capital gain taxes.
5. Less Stressful Strategy
This approach is less stressful than short-term investing because it does not require more time, effort and regular monitoring.
6. Ideal For
Long-term investment is suitable for those who seek financial independence and steady growth over time
Cons Of Long-Term Investment
The main drawbacks or disadvantages of long-term investing can be pointed out as follows:
1. Lower Returns
Although long-term investing is safer, it generates lower return than short-term investment option.
2. Limited Liquidity
Another notable drawback of this strategy is that it suffers from limited liquidity because capital is tied up for a long period of time.
3. Risk Of Future Uncertainty
Change in government rules and policies, political instability, inflation, recession etc. may increase the risk of future uncertainty,
Also Read
Pros And Cons Of Short-Term Investment
Long-Term Vs Short-Term Investing
4. Opportunity Cost
As we know that fund is locked up in long-term investing strategy so investors may may miss out short term opportunities that may generate more profits.
5. Not Ideal For
This investment strategy is not ideal for those type of investors who seek quick return in short period of time.
