Long-Term Investment – Long-term investment is a step taken to invest in assets within a certain period of time. Certain periods are valid for more than five years.
To reach the maximum time it takes quite a long time. That is, long-term investment puts capital and assets to work in order to earn passive income.
Examples of long-term investments are such as education funds, the cost of buying housing and so on.
The purpose of having an investment is so that investors who have put their assets in the long term can have a steady income without having to work or it is called passive income.
Long-Term Investment Goals
In addition to funding education and buying a house or dwelling. The investment has other objectives as follows:
- For individuals, this investment has the aim of forming personal finances for important needs in life. For example, the cost of Umrah or Hajj, wedding costs, pension costs and so on.
- In order to obtain a fixed income within a certain period of time. Fixed income for example royalties, dividends, interest, rent to share ownership.
- For companies, it aims as a special fund to finance social interests to funds for the company.
- As the company’s controller of ownership of a company asset.
- Can create wealth, people who have made long-term investments are people who are actually rich.
- Minimizing the risk of loss, holding an investment for a long time can minimize the risk of loss arising from unfavorable market conditions, such as a recession.
- Sustainable growth, long term investment is the right choice for fund growth. Asset growth in the next few years can gain stable and better profits.
Long-Term Investment Risk
Long-term investment is profitable for us. However, there are some risks behind it which are quite high or high risk high returns. The higher the risk, the higher the profit.
So investors must be more careful and pay attention to the principle of high risk, even though they will get high returns.
In fact, everyone in old age can live in prosperity and be financially sufficient to meet their daily needs. By investing, you have made the right decisions for the future.
Some people choose long-term investments because the value of the stock will continue to increase from year to year. This is what makes long-term investment returns more exciting.
However, long-term investment is also not easy. Investment will also contain risks that must be accepted if it is not in accordance with the investment plan.
Some of the long-term investment risks are:
1. Interest Rate Risk
Interest is a risk in the first long-term investment. risk becomes high due to changes in market interest rates.
These changes will affect the investment value and company income. When interest rates rise, bonds will fall and vice versa.
2. Market Fluctuation Risk
The risk of fluctuation is also known as the rise and fall of asset value. This is due to market sentiment. Investment capital can disappear due to the risk of market fluctuations.
This risk is also known as systematic risk. But it is unavoidable as an investor or trader.
3. Currency Risk
The exchange rate of the country’s currency with foreign currencies will affect long-term investment.
For example, when choosing to invest in British currency or Pound Sterling. If the Rupiah exchange rate weakens against the Pound, they will be forced to spend the rupiah in larger amounts.
So investors are more careful in making investment decisions, namely by looking at the exchange rate opportunities of foreign currencies first.
4. Country Risk
Political conditions in the country will also affect long-term investment returns. The worst thing that can happen is that the investment can fail.
If there is turbulent cooperation between Indonesia and foreign countries, it will make political conditions unstable until a coup occurs. So investors will experience failure, investors should be more careful and understand the political situation first.
5. Inflation Risk
The occurrence of inflation will affect long-term investment. When inflation occurs, consumer prices will increase while people’s purchasing power will decrease.
If there is inflation, the value of money will also decrease. For example, we have an investment portfolio of up to Rp. 10 million and then inflation is 5%, then we will lose Rp. 2 million of rupiah in that value.
6. Liquidity Risk
This risk will be felt when investors invest in a new market. If the market is not willing to buy it, the newly invested cash is considered liquid. So, cash will be difficult to be available within a certain period of time.
Types of Long-Term Investment
The types of long-term investments are as follows:
Shares are securities as evidence that the owner of capital is part of the ownership of the asset or the company that issues shares.
Stock investment is carried out only with large capital. As technology develops, this stock investment is easy to apply even to young people because it tends to provide greater profits than other investment instruments.
Shares are securities that are proof of ownership of both the Company and corporate investors. Profits from shares are dividends, but equity investors can also sell and buy shares for profit.
2. Mutual Funds
Mutual funds are securities that represent an asset or asset claim. The advantage of using mutual funds is that there are several options including stocks, bonds and currency markets that can be adjusted according to funds and risks.
Mutual fund investment is suitable for those who are in the business world. Mutual funds are also suitable for beginners, because their investments are made by investment managers. We only receive the profit.
In addition, it is necessary to pay attention to the ETF as an investment product which is a combination of the elements of mutual funds in managing funds with the stock mechanism as a transaction.
ETF is a mutual fund in the form of a collective investment contract whose participation units are traded on the Stock Exchange. The timeframes offered by mutual fund investments vary.
Mutual funds with a long term can be found in stock mutual funds with a period of five years, mixed mutual funds for 3-5 years and fixed income mutual funds with a period of 1-3 years.
3. Pension Fund
Pension fund investments are not as popular as others, but many investors are starting to be interested in trying it because of the old-age guarantees offered.
Return will be given when the age is no longer productive, even though the return is small but commensurate with the small risk. The size of the profit depends on the total profit generated by the insurance company.
Bonds are debt securities from a borrower to a lender. This investment is suitable for business people and entrepreneurs, because they can get funds to increase their business.
The period offered for this type of investment is 2 to 3 years. Later, you will get debt securities that act as proof of transactions between investors and the bond issuer. The benefits obtained can compare the annual interest earned.
Because it is guaranteed by the state, this long-term investment is very low. Even until now there has been no case of late or failed commission payments. So that bond investment is suitable for novice investors.
Bonds also benefit both parties. Companies that issue bonds have the opportunity to obtain capital from receivables to increase business.
While the receivables as a form of investment that will bring profit in the future.
5. Gold or Precious Metals
Investment in gold or precious metals is one of the profitable investments every year. Because it can be started at any time to buy gold.
“Safe haven” is the nickname of gold investment. This is because gold can be sold at any time to the gold shop. This investment provides a return of up to 12% in the long term.
Investment in gold or precious metals is a type of long-term investment with low risk.
Because the price of gold tends to be stable but the price inflation always increases every year. If inflation decreases, the price of rice will not drop drastically. In addition, gold has a very high level of liquidity.
6. Property/Land or Building
This investment is considered as a form of profitable long-term investment. One of them is because the price of land increases every year. For example, buying land or a house and then taking care of it. In the next five to ten years, property assets will only be sold and the price will increase.
However, property investment requires a large amount of capital. Of course, the potential for returns is also large.
Insurance is a type of investment that has a small risk of loss, damage and others. Its function is the protection or protection of both assets and life depending on the insurance to be chosen.
8. Time Savings
Time savings is an investment that can be taken advantage of when it reaches the specified time. The terms of time have been agreed between the two parties, namely the investor and the investment company.
Examples of term savings such as auto debit. The benefits of this investment are for future costs, if the soul is starting to feel weak, just sit at home.
Last investment often once forgotten by everyone. Investment in knowledge that is beneficial for this world and in the hereafter. As parents should help their children to seek knowledge as much as possible so that when they grow up the knowledge will be useful.
With a lot of knowledge, someone will easily find a job and be promoted. Both degrees in the affairs of this world and in the hereafter.
Long Term Investment Strategy
Any investment requires a strategy. A big mistake when investing without careful planning. To achieve a goal, you need to learn a lot from corporate investors. The following is a long-term investment strategy:
1. Understanding the inside of business
Analyze the background, current and future of a company. In addition, the vision and mission as well as goals before investing in it so that investors are aware of the risks involved.
2. Understand the company’s balance sheet
To analyze the stability and future health of a company, it is recommended to browse and study the company’s balance sheet.
This report reflects the net profit or loss arising from all types of business activities.
3. Check company profit and growth
Investors are required to check the company’s performance from previous years starting from net profit, future performance and possible growth.
4. Enterprise adaptation to technology
Investors need to know the company has implemented new technology or is still following the conventional way. Because the company’s success depends on its ability to adapt to new technologies.
5. Focus on the company’s next three years
It will be time consuming to predict the company’s performance in the next 25 or 30 years. So, an investor must be able to pay attention to the company’s vision for the next three years.
6. Company competitor analysis
Competitors can turn things around if they can capture the company’s market share. Therefore, it is very important to know the potential competitors of the company.
Tips and Ways of Long-Term Investment
Before deciding to choose the type of long-term investment, here are some tips and ways to consider.
Don’t put your capital in one type of investment
The mistake of pre-novice investors is to put all their capital in one type of investment. When stock instruments fall in price, investors will experience losses. So, at least invest in 2 types of investment.
Get to know the instrument
Make sure before entering the world of investing, then first learn how it works. This is useful so that later you know the risks that will be obtained or taken.
Not easily discouraged
There will be risks when long-term investments are fixed and cannot be eliminated. If you experience a loss, keep getting up and keep trying to get the maximum profit.
Investing is a field that can be studied. There is effort and will, it will definitely pay off. A success will not be achieved if there is no strong will and effort.
If the supplies and capital are ready, then the investment begins. By investing more quickly, there is an opportunity to enjoy greater asset value. Of course, with sufficient knowledge and capital.
Long Term Investment Advice
Before making an investment, there are several suggestions to make, including:
Planning an emergency fund
With an emergency fund, long-term investment will not be disrupted. If you do not have an emergency fund, things that are not desirable will disrupt the investment.
The investment objectives must be clear as to what the future will look like. If you don’t have a goal, your investment will not yield maximum results.
Planning retirement goals
For some people planning a retirement goal is very necessary, so that later they can enjoy the results in old age.
Check the portfolio once a year, so that later you can evaluate what is needed.
Things to Avoid in Long-Term Investment
Do not invest all of your capital in one type of stock. This can avoid the risk of loss or low returns.
Do not panic if the stock is going down, because this is temporary when viewed from past movements.