Long-term investments are The concept, types, characteristics and possible risks of long-term investments

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Investing is troublesome. Especially if you play on the stock exchange in order to get a quick and large income. Most Russian citizens who lived through the 1990s are not ready to risk their hard-earned money. However, nothing prevents them from being interested in high interest rates with full capital protection.

Deposits are gradually losing their relevance, the key interest rate is falling. It is followed by lower interest rates on deposits. Bank customers who have used this product want to expand their knowledge and create capital with maximum profitability. What are the means by which investment growth is achieved? What is long term investment? Is this a reliable way to increase passive income? Let's look into this issue in detail.

How to invest profitably?

The basic rule of successful investment is investment diversification. A smart investor does not use one single way to generate income. The investment portfolio is made up of variousfinancial instruments. These are both long-term products, primarily, and short-term, risky instruments. In what percentage will be all the possible and desired financial instruments for the investor in his portfolio - the owner of the capital decides. For himself, he highlights real opportunities and focuses on personal preferences. It is recommended to leave part of the money for long-term investments. This part of the capital is usually much larger than all other parts of the investment portfolio. In this way, the depositor keeps the main part of the amount safe and has a stable high income. What securities are included in long-term investments?

Promotions

The first thing an unprepared person thinks about is that stocks are complex and accounting for long-term investments requires special skills and abilities. In fact, any citizen with an average mind is able (with due attention and perseverance) to deal with this financial instrument. For a simple understanding, long-term investment in company stocks looks like this: every large company needs money to develop it. Not every organization can manage on its own. We have to use investors' money. Investors contribute a certain amount to the development of the company, counting on making a profit based on the results of the company's work. Under the investment agreement, they are en titled to a part of the money earned by the company. What share profit is formed from:

1. Dividends. They are paid from the company's net profit, which is calculated once a year by the owners. The calculation is based oninvested amount. As a rule, after the payment of dividends, the investor puts them back into circulation. This process is called reinvestment.
2. Exchange difference. It is characterized by constant control over the share price. The bottom line is that shares are bought at one price and sold at another. On this difference in price, the investor's profit is obtained. Such actions on the exchange require considerable experience and understanding of the state of the market.

Types of promotions:

1. Shares of value. These are the shares that, for some external reason, have fallen in price. Perhaps there was a crisis in the industry or the season changed. The influence of these factors will weaken or completely disappear after a while, the value of the shares will increase. The investor will make a profit on the price difference. The question is, after what time will the shares become liquid again? The term can drag on for decades.
2. Growth stocks. Sold by companies that are growing in giant strides. Interest on such stocks grows very quickly. Dividends are rarely paid, usually these securities are reinvested and wait for further growth.
3. Dividend promotions. They go up in price for a long time. Their profitability is determined by the profit of the company to which the shares belong. These are large, profitable firms.

Each investor, according to the chosen strategy, selects shares for himself. They should be consistent with the objectives of the investment and be based on the timing of the projected income. The shares have different values, so there is no link to the amount of capital. Recommended for beginner investorsto train on the shares of the so-called blue chips. These are the companies that have been generating stable income for decades (Coca-Cola, Procter and Gembel, Nestle, etc.). The shares of these firms are high in price, but their returns are stable.

Bonds

The essence of this type of long-term investment is as follows: the investor lends money to the company, which undertakes to return it after a certain period of time with interest on its own profits. Interest on bonds may also be paid periodically. The rate on bonds is consistently higher than on deposits. Bonds, depending on the issuer, are divided into:

1. Government (Federal Loan Bonds). They are considered the most reliable. Profits are stable, but low, on a par with bank deposits. There is a money back guarantee.
2. Regional, municipal. A variety of state, profitability depends on the development of the region.
3. Corporate securities. They are issued by firms that seek to attract funds from private investors. Usually these are large reliable companies, but there are exceptions. You should carefully consider the choice, based on the experience of investing (perhaps someone else's).
4. Folk. This is a specific program of large banks (Sberbank, VTB). The bonds are issued at a rate of 8.5% and are not subject to income tax.

The cash that depositors receive as income from bonds is called coupon payments. Terms of placement of finance range from one year to long-term, over five years. Compared to stocks, buying bonds isless risky activity. Bonds are usually secured. In the event of the bankruptcy of the debtor company, shareholders will receive nothing, and bondholders have the right to first payment.

Mutual investment funds (MUIT)

If a novice investor is uncomfortable with the idea of analyzing companies and buying securities on their own, then a mutual fund will be an excellent alternative. For a small commission, trusted specialists, professionals in accounting for long-term investments, will take care of your financial affairs. The share itself is also a security. The fund's employees have in-depth knowledge of financial strategies and experience in investment activities. By giving money under the management of professionals, the investor loses nothing, except for a small commission that they charge for the work.

When choosing a mutual fund, be guided by the strategy according to which work is being done inside it. Each mutual fund has its own investment strategy. A diversified investment portfolio is considered literate, where securities of various directions are distributed in a share ratio. Ideally, when mutual funds in the aggregate affect all highly profitable activities of companies. Before purchasing shares, pay attention to the dynamics of the profitability of the fund's strategy. Do not be fooled by loud advertising about the real profitability of mutual funds, watch the real profit. Recommendations:

1. Hold money in a mutual fund for at least three years. During this period, the strategy will show itsreal yield, and illiquid yield will gain positive dynamics.
2. For those who hold shares for a long time, there are tax benefits and special conditions from funds. This will save money when withdrawing from the investment strategy.
3. Explore special offers from funds. There are often benefits for unit holders under certain conditions (buying for a fixed amount, paying online, etc.).

Property

Considered one of the most reliable long-term investments. If there is a large amount, the investor buys housing under construction or finished housing. Since 2019, the sale of real estate "from the pit" is prohibited at the legislative level due to frequent cases of deception of equity holders. Analysts predict an increase in prices for apartments. Nevertheless, housing will remain a valuable resource. The uses for this type of investment are endless:

• An apartment bought at a reasonable price during the construction phase is sold at a higher price. Often the amount of the difference in price is close to half the original cost. An income of 40-50% is an excellent result of investment investments.
• The apartment is rented for a long time, receiving a monthly profit. Its size depends on the delivery area. In Moscow and other large cities, the price of rented housing corresponds to the average monthly income of a metropolis resident. This method is a great opportunity to provide yourself with a constant passive income, spending funds only on cosmetic repairs when necessary.
• Daily rent brings more profit than long-term. But the risks of the owner in thisIn the case above, it takes a lot of time to rent / show / clean the premises.
• Buying property abroad has recently become more popular. They use such housing more often for renting out and generating passive income.
• The cost of square meters in Russia is only increasing from year to year. Therefore, even after living in your own apartment for several years, there is a chance to sell it for more than it was bought.

Deposits

The classic way to generate income. It becomes long-term when the investor constantly renews the period of capital placement upon reaching the end of the deposit agreement. Given the fall in the key rate, interest rates on deposits are expected to decrease in the future. This trend has been maintained for several years now. Therefore, the profitability of this investment method is low (on average 6-7% today). But the method remains one of the most popular, especially among older people. These are long-term investments, the main advantage of which is 100% capital preservation and profitability indicated in the contract. The Deposit Insurance Agency insures the amount of 1,400,000 rubles per depositor in one financial institution. Thus, the interests of capital owners in the event of a bank failure are protected at the state level.

Precious Metals

Similar to deposits. The yield of precious metals is small, but stable. The investor is offered three ways to purchase metals: coins, bullion and depersonalized metal accounts. The latter are the most popular way. The client does not physically see precious metals, but buys them at the rate. In the future, there is an increase in price. On this exchange rate difference, the investor's capital is formed.

Currency

These long-term investments are relevant for those who are not sure about the stability of the ruble and are ready to constantly monitor the exchange rates. The investor receives income due to the difference in the exchange rate at the time of purchase and at the time of sale. Some capital owners prefer to keep money in the currency in case of default. Rates on deposits in foreign currency leave much to be desired, so the profit in this case is doubtful and unpredictable.

Where can I get money?

The size of the initial capital with a burning desire to engage in long-term investments does not matter when it comes to securities. Consistency and stability of income from long-term investments encourage investors to use various sources of funding:

1. Elementary source is own funds. Their roots can grow from anywhere. Cash can be earned, inherited, used as a source of long-term investment financing after the sale of expensive property.
2. Borrowed funds. It is important to understand that the interest for using credit funds should not exceed the potential and actual return on long-term investments. Otherwise, the investor will remain in the red and the investment goal will not be achieved.
3. Government subsidies. Investmenttakes place with federal support. The state helps start-up businessmen and finances investments. For example, support for agriculture in Russia comes at the federal level.
4. Third party tools. Those that managed to attract from private hands. Mutual investment funds and projects that require investments and attract investors for mutual cooperation work according to this scheme.

How to invest correctly?

Long-term investment projects require a carefully calibrated scheme of action and stability of its execution:

• At the first stage, it is necessary to determine the sources of long-term investments. Choose the most interesting investment option for you, get acquainted with the potential profitability, calculate the likely profit and compare it with the intended goal of generating income. If the result is as expected, take action.
• Gather as much useful and correct information as possible about your future source of income. Find reviews, articles and analyst forecasts. An analysis of long-term investments and the experience of previous years will provide the necessary information about the liquidity of the selected project.
• It would be useful to use the services of a financial consultant to analyze the investment portfolio. A professional calculation of potential profit will clearly demonstrate future income.
• Buy what you choose. Or invest where you decide. Do not waste time, otherwise the calculations may not be correct or the value of assets will change. In this case, you will have to start the whole process again, otherwise the circuit will bewrong.
• Constantly monitor your investments. Market testing is carried out in the long term, minor fluctuations do not affect the bottom line. "Put and forget" is not about an investment project.
• Control profitability. Periodically audit and account for long-term investments. So the probability of failure will be minimal.

Risks

Despite the fact that investments in long-term investments are the most profitable, there are still risks in their use:

1. In the event of the acquisition of shares of an unreliable enterprise with its subsequent bankruptcy, there is a risk of non-return of funds. Choosing a company in which you plan to invest is required with particular care.
2. Debt obligations of the company whose shares were purchased. The risk is that your investment contribution will be used to pay off these debts in the event of bankruptcy of the creditor organization.
3. Risks of long-term investments not related to the financial activities of the investee company. For example, a tense political situation, a coup d'état, social instability and criticism of the company in the press. All these factors negatively affect the value of the firm's assets.

In closing

Before you decide on long-term investments in securities, choose a reliable broker. It is he who will become the intermediary through which you will conduct transactions in the stock market. The main task of a broker is to timely andfully enable the investor to withdraw funds from circulation.

The top 11 brokers in 2018 included: VTB, FG BCS, Sberbank, FINAM, Otkritie Group, ATON LLC, ALOR BROKER, KIT Finance, Bank GPB, Promsvyazbank, JSC IC IT Invest.

A long-term investment project should be approached responsibly and not let things take their course. If necessary, especially at first, do not hesitate to use the services of a financial advisor. A competent approach will protect your capital from possible losses.