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Why is Long Term Investment Important?
Long Term Investments are those when you hold your stock, assets, bonds etc for a duration which is more than a year, may be ten years or something that you intend to hold for even much longer. If you are the one who is not running after quick returns then long term investments are your cup of tea. Long term investments grow substantially in good number of years and give you higher returns in the long run.
However, 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.
You have heard the story of the tortoise and the rabbit and you know it well that slow and steady wins the race. Same applies to long term investments. You may click on short term growing funds in order to make steady cash but if you go for long term investments you let the compounding magic work for you.
Advantages of Long Term Investment
- It is not always possible to have high returns all the time. While you invest in short term funds it is not necessary that the fund in which you have invested will grow in the short span. On the other hand, if you go in for long term investment you will be able to sail through the highs and lows of the market and get substantial returns on your investments.
- Long term investments help you grow your money through the magic of compounding. The early you start the better for you. While playing in long term stocks, you do not get distracted by short term conditions.
- It is very difficult for you to predict the performance of market in short term whereas if you have a look at the performance of a stock over a period of time you will realize that the stock has showed upward movement.
- Long term investment helps you to build a diversified portfolio. It is important for you to accept that you are a human being and you cannot make right choices always and long term investment will help you run smoothly through the peaks and valleys of the market and also provide you with higher returns as you will have a good amount of varied options in your portfolio. If you keep updating your portfolio by getting rid of the non-performing chunk and catching hold of the performing stocks you will be able to yield good returns.
- Long term investments offer lower risk as compared to short term investments. One wrong move in your short term investment and you are gone whereas when it comes to long term investment you can slowly and steadily choose your investment options which will at least leave you well-off and it will surely not be strenuous for you.
- Long term investment seems more direct and easy than day trading. Day trading requires a lot of caution and time.
- In case of long term investments, investors need to be proactive and is less cumbersome. You do not have to sit at the edge of your chair. Even passive investments prove to be convenient.
- Even if you have made a mistake while making investment decisions, long term investment gives you a chance to mend them. You have time at your disposal to rectify where you have gone wrong. You can make up for the bad year of performance of your stock easily in coming years.
- When you opt for long term investment your portfolio turnover comes out to be less as compared to short term investments where whatever you sell becomes subject to taxes. With long term investments at your disposal you can grow money through compounding and delay tax liabilities.
- If we talk about the commission expenses then it goes without saying that such expenses are far less in long term investments.
Experts do advise long term investments as they help you meet your long time financial goals. As you play in a diversified portfolio you are able to nullify the effect of a bad year of stocks with the coming years. However, while you plan to invest for long term you need to analyze the time that you have at your disposal. You need to plan well in advance the amount you can spare, the years for which you can stay invested and whether you will require that money in the next few years or not.
When you stay invested for long you do extend your risk to the following years but you indeed have a fair chance of rectifying your mistakes if you have landed yourself with a non-performing stock.
Long term investments pay off well in long durations like five years or ten years or above. If in any year during this period your stocks fall, you need not panic because if you sell off your stocks while the market is low you are bound to lose but remember that the market cannot remain the same, it will surely recover and you can easily make up for the loss.
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
Contributed By: Megha Sharma
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.