Long-term investments are the best for compounding and meeting goals like retirement planning. These investments also involve a higher degree of commitment, making it essential to select the best one.
In personal finance, you need long-term investments in which you would stay invested during different market situations.
These long-term investments will hold your hand throughout any situation. But for it to work, you can regularly invest in long-term schemes in a market boom or a downswing. One way to invest is regularly investing through Systematic Investment Plans (SIPs). You can also invest in your best long-term investment using mutual funds.
But, is there something called “best long-term investments”? There can be investments that can be best for an individual but not for another. Therefore, one can call “best long-term investments” a myth. Let’s learn about long-term investments in detail.
An investment that is made keeping in mind a long-term horizon is called a long-term investment. A long-term horizon can be anything above five years. So, an investment made for a horizon of five years or more is called a long-term investment.
But why do you invest in a long-term investment?
You invest in a long-term investment for your long-term goals. Let’s understand these goals.
What comes to your mind when you think about a long-term commitment? Yes, your children’s marriage can be a huge expense and, therefore, a reasonable long-term goal. What are the other goals one can have?
Let’s look at financial goals and their horizons. Goal-based planning is one of the core aspects of investing. These goals can be divided into short-term, medium-term and long-term goals.
You might have various financial goals that can be divided into short-term, medium-term and long-term goals.
Examples of these goals are going on an international trip with family and reducing your home loan burden.
Examples of these goals are planning your retirement and higher education or marriage of your children
Long-term investments are made for long-term financial goals like retirement planning or your children's future.
What can you do when you are investing for a long-term goal? You can take more risks. Yes, the risk in long-term investments can be offset by compounding and returns in the long term.
For example, you can invest in equity-based mutual funds. These funds invest exclusively in equities. Equity investments are volatile in the short run, but in the long run, the market has historically moved forward. Also, if you are investing for a long time, you might want to create a sizable corpus. Therefore, it can be better to have an investment with a higher return potential in the long run. Equity-based mutual funds can fit into this requirement with your ability to take more risk in the long run.
But, is the long-term horizon of a goal enough to take investment risk and invest in equity mutual funds?
No, there are other factors too that influence your long-term investment choice.
Are you currently in your thirties or forties, or are you closer to your retirement age? The answer to this question also impacts your long-term investment decision.
Your risk appetite reduces with age. Therefore, the investments you would choose for the same goal will be different for different age groups. In your thirties, you can aggressively invest in equity mutual funds. If you work in a metropolitan area and are at a mid to senior income level, it can be easier to take a long-term investment risk by investing in equity mutual funds.
This is different from what your investment strategy would be if you’re in your fifties, staying in a metropolitan area. Or, in your late twenties and staying in a tier two city. Here’s why:
Your expenses are more in a metropolitan area than in a tier-two city. However, your earning capacity and income level can be higher if you work in a metro area.
Similarly, your age determines your risk appetite. As you move closer to retirement, you have fewer working days left. After retirement, you will have to depend on your retirement corpus.
Therefore, factors like age, geographical location, income level, number of dependents, and more determine your risk appetite, affecting your choice of long-term investments.
Different long-term goals require different long-term investments. You can even reach your financial goals by saving regularly for them. Also, this helps better if you can segregate them. This segregation can be done better with the help of Jars in your Fi money application. You can create as many Jars as you want and fill them from time to time to save for your goals.
This segregation helps you track your goals and stay committed to saving for them.
Imagine that you started investing, and then three years down the line, you suddenly lost your job. Uncertainties like these can make you stop your goal-based investments and eat out your savings and investments.
Uncertainties like inflation, job loss, theft and medical emergencies can occur anytime. To avoid delays like these raging havoc on your investments, you need a strong emergency corpus before you tag along with your best long-term investments.
So, you invested in a long-term investment, say, retirement planning, and now is the time to redeem it. How would you do that?
Mutual funds offer effective ways of regular withdrawals through redemption through SWP (Systematic Withdrawal Plan) and STP (Systematic Transfer Plan). As you move closer to your retirement age, you can transfer your retirement corpus into a less risky investment, such as debt funds. You can do this systematically through STP, where you can gradually make that shift.
Even if you wish to redeem your investments for a regular income, you can opt for SWP, where you can redeem some units of your mutual fund investments every month while the rest remain invested.
Long-term investments require long-term commitment to invest and stay invested. Therefore, it is important to choose investments carefully based on your risk appetite and financial goals. It is also important to start investing after you have taken care of uncertainties. This will help you stay committed to your long-term investments. Do you like this idea of a long-term commitment with your investments? Start using the Fi money app now and avail a host of benefits like creating goals in the form of Jars and saving through deposits. Also, if you want to invest in mutual funds, there’s a quick way to start SIP through FIT rules on the Fi app.
Long-term investments have the potential to give you the highest return. These are generally equity or equity-based investments. In mutual funds, you can make regular investments in equity-based schemes through SIP.
SIP in mutual funds as long-term investments can give you benefits like compounding, cost averaging, and inflation-beating potential returns. However, it is essential to make your long-term investment choice based on your risk appetite.
You can choose investments based on your risk appetite and goals for investing in 2022. Your risk appetite is based on age, geographic location, number of dependents, expenses, income level, job profile and more. Another factor influencing your investment choice is your financial goals. With a higher goal horizon, your capacity to take risks increases.
To grow your money, it is important to know yourself and your goals. While your risk appetite forms a part of your investment decision, your goals can give you a clear idea about your investment options. Knowing your dreams can help you learn about their required horizon and the regular investments to meet them.
Goal-based financial planning can be the key to growing your money and meeting goals. You can also grow your money by savings in short-term and long-term deposits to reach your financial goals. You can save for any of your goals with short-term and long-term deposits easily by creating Jars in your Fi money account. By creating Jars for your purposes, you can make small but regular savings and track your financial goal journey with ease.
Currently, some of the top ranking long term investment funds are -
Long term investment plans are generally considered to be safe options for growing wealth. I good example of this are schemes like the Public Provident Fund (PPF)