Investing involves putting your money into something in the hopes of generating a positive return. While some forms of investing are short-term, the greatest returns often come from long-term investing.
What Are Long-Term Investments?
A long-term investment is typically considered any asset that you plan on holding for at least three years. This may include investments in stocks, bonds, real estate, certificates of deposit (CDs), and more.
Long-term investing is an alternative to short-term investing, which involves holding an asset for a short period. Choosing to invest long-term can provide several advantages, including:
- Lower transaction and administrative fees
- Easily ride out market fluctuations
- Spend less time monitoring investments
Long-term investments often result in lower fees. You perform fewer transactions with long-term investments compared to short-term investments, which means you pay less in transaction fees and administrative fees.
Long-term investing also makes it easier to ride out small fluctuations in the market and the economy. A small recession has less of an impact on long-term investments, as most assets tend to recover from bear markets.
Choosing long-term investments allows you to spend less time monitoring stocks and business news. With short-term investments, you need to check the performance of your assets more frequently to know when to buy or sell.
How to Develop a Long-Term Investing Strategy
Long-term investments may offer better returns if you take the time to develop the right investment strategy. Common long-term investment strategies include:
- Current income investing
- Capital growth investing
- Balanced allocation investing
Current income investing involves investing in assets that pay above-average returns. These assets typically include large corporations with stable track records. However, corporate bonds may also provide steady, reliable distributions over a longer period.
Capital growth investing involves identifying assets that may significantly increase in value. This may include individual stocks, exchange-traded funds (ETFs), and even mutual funds.
Balanced allocation investing aims to include a balance of assets of varying risk levels to help offset any potential losses.
A financial advisor can help you explore investment strategies that align with the level of risk that you feel comfortable with. You can also consider visiting your local bank or credit union, as many financial institutions offer financial advice to their customers free of charge.