Long-term investing is often the best way to build wealth that stands the test of time. It’s how you plan for retirement and build a legacy to pass on to your children and grandchildren. Long-term investments require patience, but they have the potential to pay off with a much higher return than the quicker-fix choice of short-term investing. If you’re looking to figure out which long-term investment options are best for you, it may make sense to talk to a financial advisor. SmartAsset can help you find one with our free financial advisor matching service.
What Is Long-Term Investing?
Long-term investing is the practice of buying and holding investments rather than buying with the express purpose of selling quickly. The exact definition of how long you must hold an investment for it to qualify as a long-term investment varies. Generally, it is between one and five years, though it can be much longer.
Investors hold short-term investments for a much shorter period of time. Short-term investments are about getting a quick cash-out but often come with higher risk or lower potential return. Long-term investments require more patience on your part. That patience is a trade-off for potentially lower risk and/or a higher possible return.
Common sense says that long-term investing is more conservative. Sometimes that’s true, but not always. You can invest in the stock market, generally considered one of the riskier possible investment choices, with the intention of holding the stocks for a long time. There is still a good amount of risk involved even though it’s technically a long-term investment if you hold the stocks for a longer period of time.Types of Long-Term Investments
There are a number of long-term investment options to consider when building a portfolio. As always, remember that diversification is an important part of any investing strategy, so don’t think you need to commit to any one option or that you can’t also include some short-term investments to build a strategy that works for you.
It’s important to approach long-term investing with patience. You aren’t going to see the quick increases in portfolio value that you might with short-term investing. Also, it isn’t always going to be the most exciting type of investing. Keep your eye on long-term goals like retiring, paying for your child’s education and passing on some of your wealth to your family.
In addition to your financial goals, make sure you’re thinking about how much volatility you can stand. Make sure to choose an asset allocation that aligns with your risk tolerance as well as your time horizon. Typically, the longer you have to invest your money the more risk you can afford to take.The Bottom Line
Investors hold long-term investments for a period of several years. Long-term investing is about buying and holding securities rather than selling at the first sign you could make some money. Long-term investing is about patience and waiting out bad cycles. You have to think about how an investment is likely to pay off down the road. There are a number of possible long-term investments you can make. Just think about your own financial situation before deciding which of them is right for you.Investing Tips
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