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A quick look at long-term investment for beginners

Many of us have reduced spending in the last three-four months. The economic downturn led by the pandemic has offered a unique opportunity for young and middle-aged people to look at the broader horizon to save for their retirement and invest.

Long-term investments are assets that a company intends to hold for more than a year. As you begin to understand the principles of investing, you will see that it's not just investments in the stock market, but investing in other asset classes and ventures

These can be in the shape of stocks, bonds, real estate, cash and others. It could also be investing in yourself and in areas where you may have greater control of your desired returns. Being able to evaluate investments is also another very important factor, depending on the investment type.

Rule of Investing

The only rule here is that if you do not understand the business you invest in, changes are you might not be able to discern the noise from truly meaningful information that should factor into your decision-making.

Stay away from investment strategies that are too obscure, complex, or parallel with your interest. If you do not really know how investments work, how can you expect them to work for you?

Warren Buffett once said “The longer money is invested, the more potential it has to grow” and this is how he made use of most strategies.

Investors who start early, practice patience and stick to a long-term investing strategy often see the best returns and financial success.

Some Long-term Investment Secrets

  • To have an idea of likely returns on a particular investment, you would want to look at any historical data available.

  • Look at the last 10 to 50 years if possible, that's why a lot of advisors typically prefer historical data and averages from the stock market over a long period of time. Another area to look at low is the cost and tax efficiency. Watch your investment costs carefully, including calls for transaction fees, management fees and taxes.

  • Long-term equity market investors will be more concerned with the ability of a company to generate cash flows and to build shareholder value over time. What really distinguishes a long-term investor is that they set their sights on the long run drivers of value and return, rather than near term share price movements.

Risk vs. Reward

Long-term investors take risks to the extent that the evolution of market prices and expected returns is dominated by mean reversion over the longer term, versus momentum in the short term.

Long-term investors might be more willing to take exposure to assets that seem risky over short horizons as well as favouring strategies such as value investing and disciplined rebalancing.

To learn more about investing with returns, speak with our professional financial advisors today.

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