What you should know about long-term investments
Is it true that the longer the investment, the more profitable it is? Where does the risk come from in the case of long-term investments? Many people wonder whether a good long-term investment is not a better guarantor of a safe retirement than national insurance contributions. As part of “Investment Secrets”, find out What you should know about long-term investments.
1. Long-term investments are any type of investment that lasts over a year. In many markets, this is a significant part of all investments, in others – for example, diamonds or wine – they are all considered long-term investments. Why? Any investment where a large margin is involved (for example, for the intermediary selling bottles of luxury wine) or where the VAT is added (23% tax is added to most luxury goods) will be long-term. Therefore, by investing in a product with an added margin and tax, such an investment is, in fact, worth, only moments after its purchase, about two-thirds of the price for which it was bought. Therefore, it is not worth reselling anything with a high tax attached earlier than within the first year, and instead it is recommended to wait until the value of the investment increases accordingly.
2. The biggest risk related to long-term investments in securities is the bankruptcy of their issuer. The shares of a bankrupt company lose value at an astonishing rate, because even if the investment is insured against such eventualities, the company that has gone bankrupt will still have a solvency problem. Therefore, the most reliable and approved securities issued for twenty or forty years are issued by countries. Private companies have relatively low solvency and financial credibility, for example, after half a century, so the majority of companies do not even issue shares or bonds for such a long period of time.
3. Long-term investments are generally more difficult to analyse than short-term ones. This is due to a greater number of variables – the economic crisis may be at stake, investments in Europe are strongly influenced by the current condition and distribution of the European Union budget, investors who prefer assets under US jurisdiction have to take into account the FED and the political turmoil over there. Some types of long-term investments are also clearly affected by natural disasters or the situation in the Middle East.
4. The most reliable long-term investment is real estate located in larger cities, which have been growing in value for years due to increasing urbanisation. Large regional cities, such as Manchester, Liverpool and Birmingham, have been increasing in value for decades and are centres of population influx from villages and smaller towns. Apart from the potential to sell such properties, investors often make them work for themselves, for example, by renting them out. Particularly attractive is the rental of flats located close to universities, as it guarantees a constant influx of students looking for flats close to their faculty.
5. In the foreign currency exchange markets, long-term investments have a clear advantage over short-term investments due to lower commissions. Often the need to execute numerous transactions in a short period of time reduces the profit by a significant percentage due to the commission which has to be paid to the intermediary. Looking at the issue in this way, it is hard not to notice that the intermediary will aim to offer several shorter investments rather than a single long-term investment. When planning an investment for more than several years, it is worth looking at whether and which intermediaries are willing to take such an action because, due to low profitability, some investment platforms do not offer any options to invest for a really long period of time.
Long-term investments undoubtedly require more certainty and knowledge of the principles of capital investment than short-term investments. Some also require the accumulation of a significant amount of funds – real estate or luxury goods are not cheap, and those assets that guarantee a steady and considerable return over many years often have a prohibitive price for a private investor. But does this mean that long-term investing should be left to companies and funds? Not necessarily. All you have to do is search for a niche that is suitable for clients with a moderate capital, but with significant investment knowledge.