Depending on your level in life, you may have a future plan or goal. Generally, younger people would have goals of acquiring properties while the old would be fine with a periodic source of income. No matter your goal, you should have a plan. One investment rule you should always keep is Don’t put all your eggs in one basket. You should have not just one investment asset but a couple of assets that balance your risks and rewards. This is called asset allocation. Asset allocation is an investment strategy that seeks to balance risk and rewards by apportioning a portfolio’s assets according to an individual’s risk tolerance and investment horizon. Your portfolio may include short-term assets and long-term assets. Let’s have a quick definition of short-term assets and then delve deeper into long-term assets.
Short-term assets are assets that are held for a year or less. They are also referred to as current assets. These assets are easily convertible to cash because they are temporary. Examples of short-term investments are Treasury bills, high-yield savings accounts, government bonds, and money market accounts. They are usually invested for 30, 90, or 180 days. Short-term assets grant you access to your money in terms of cash. Also, you can make substantial profits in a short period of time. The risks involved in short-term investment are always low. Short-term investment helps to preserve your capital.
A long-term investment is about wealth creation. If you are thinking of building a portfolio that will provide you with income later in life, then you need not leave long-term assets out of the picture. In your quest to earn high rewards, you need to be ready for the risks involved too. Long-term investments last for 5 years or more. Examples are stocks (growth stocks, high dividend stocks), long-term bonds (corporate, government, international bonds), and mutual funds (actively managed funds). Real estate, which is an alternative to stocks, is considered the best long-term- investment asset. This is due to the fact that real estate properties appreciate in value every year. Options available in real estate are rental properties, REITs, and real estate crowdfunding. The following are the benefits of including long-term assets in your investment portfolio.
Long Term Investments survive market crashes
Market crashes or bumps refer to periods where returns on investment drop due to unforeseen economic happenings. When situations like this occur, you may be compelled to bow out of these investments, especially if they are short-term investments. On the other hand, financial markets have a nature of bouncing back from every market drop. A key case study is the global market crash in 2020 as a result of the Covid-19 pandemic. Yes, there was a drop, yet investors who kept their cool are now enjoying profits as the market returns to normal. Therefore with your long-term investments, you will enjoy higher returns whenever the market bounces back with higher rewards. So having a long-term asset as part of your portfolio balances your portfolio with regard to market volatility.
Your money has more time to grow
Your money Has time to grow when it remains untouched in an investment package. It is essential to note that when they are invested for long, your investments benefit from compound returns. As you roll over your returns, you do not only make returns on your principal but you also make more returns on your previously earned returns.
Less broker commission
Investing long reduces the fees you pay as commission to your broker. Sometimes you have to pay a one-off commission for the said investment until the time of withdrawal. The more you move out of your investment, the more fees you have to pay and the lesser your returns. Keeping a long-term asset increases your returns while it reduces your costs.
Including long-term assets in your portfolio puts your mind at rest. It helps you to make rational decisions. You are not tempted to pull out immediately when the market goes down. Some investors with long-term goals do not even monitor the market. They tune their minds to other business issues with a sure expectation of their returns in the long term.
Not difficult to invest
Since you are not going to be active in the investment field, you don’t need any financial or investment skills. All you need to do is to conduct good due diligence and be sure of the best investment avenues. There are many brokers who are also available to assist you. You can then structure your portfolio and hang on to them for 10 years or more.
The choice of a particular asset portfolio is a very personal decision. As much as you would want to have readily available funds in your accounts, it will be the best decision to include long-term assets in your portfolio.