Table of Contents
- What Is Long Term?
- Key Takeaways
- Understanding Long Term
- Long-Term Investing for Companies
- Long-Term Investing for Individuals
- What Is Considered a Long-Term Investment?
- What Are the Characteristics of a Long-Term Investment Strategy?
- Is Gold a Good Long-Term Investment?
- What Are Long-Term Marketable Securities?
- Why Are Long-Term Securities Less Liquid?
What Is Long Term?
Let me explain what 'long term' means in investing. It refers to the extended period you hold an asset. Depending on the security, this could be as short as one year or stretch to 30 years or more. For individual investors like you, long-term investing usually means holding for at least seven to 10 years, though there's no hard rule.
Key Takeaways
To break it down directly: 'Long term' is about the extended time an asset is held. Typically, a long-term asset is one you've kept for at least a year. Remember, it's subjective and depends on you as the investor—selling after less than a year triggers different taxes than holding longer. On a company's balance sheet, these show up as investments on the asset side. Short-term ones get marked-to-market with losses recognized immediately, but gains only when sold.
Understanding Long Term
You've probably heard 'long term' thrown around in finance so much that it's hard to nail down. The media tells you to invest for the long term, but what that means is subjective. As a day trader, holding overnight might feel long term to you. But if you're a buy-and-hold investor, anything under several years is short term.
Long-Term Investing for Companies
For companies, long-term investments sit on the asset side of the balance sheet. These include stocks, bonds, real estate, and cash they plan to hold over a year. When a company buys another firm's stock or debt, classifying it as short or long term affects how it's valued. Short-term investments are marked-to-market—declines count as losses right away, but gains wait until sale. This directly hits the company's reported net income. Analysts watch for shifts in long-term assets; if a company starts selling them off to cover expenses, it's often a red flag if it persists.
Long-Term Investing for Individuals
For you as an individual, long-term investing often ties to saving for retirement—it's your biggest multi-year goal, though things like buying a car or house also count. Start early and invest regularly, as you're advised. Real estate fits this mold; you buy a house and hold it for years, selling later or until the mortgage is paid. Profitable securities sold after a year face capital gains tax, not ordinary income tax like those sold sooner. Stocks, mutual funds, and ETFs can be long or short term based on your holding period—you might sell quickly for gains or hold for years. With decades ahead, use compounding and take calculated risks; market dips are part of aiming for higher returns.
What Is Considered a Long-Term Investment?
Long-term investments are securities you hold for more than a year, generally. This includes stocks, bonds, real estate, mutual funds, and ETFs.
What Are the Characteristics of a Long-Term Investment Strategy?
A long-term strategy means holding for a year or more. It carries higher risk from future uncertainties, focusing on price growth over time rather than quick wins, so you ride out price drops. Diversify your portfolio to cut long-term volatility.
Is Gold a Good Long-Term Investment?
Gold hedges inflation and stores value, but historically, stocks and bonds outperform it on average. Still, in specific periods, gold can beat them.
What Are Long-Term Marketable Securities?
Marketable securities include stocks, bonds, and ETFs. They're current assets if expected to sell in under a year, often months, and are liquid with many buyers.
Why Are Long-Term Securities Less Liquid?
Long-term securities are less liquid because you hold them longer to profit. They're not easily sold—like a house that appreciates slowly and can't be flipped quickly. Longer-maturity bonds pay more but require extended holding for yield.
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