What is the long term?
Long term refers to the extended period of time during which an asset is held. Depending on the type of security, a long-lived asset can be held for as little as a year or as long as 30 years or more. In general, long-term investment for individuals is often considered to be in the range of at least seven to ten years of ownership, although there is no hard and fast rule.
Understanding the long term
The long term is one of those expressions that is so pervasive in finance that it has become difficult to define a specific meaning. The media frequently advise people to “invest for the long term”, but determining whether an investment is long term is very subjective. A day trader, for example, would define “long term” very differently from a “buy-and-hold” investor. For the day trader, a position held overnight would be a long-term commitment. For the buy-and-hold investor, a period of less than several years can be considered short-term.
Long-term investments for businesses
A long-term investment is on the assets side of a company’s balance sheet, representing the company’s investments, including stocks, bonds, real estate and cash, which it intends to hold. for more than a year. When a company buys shares or debt securities of another company as investments, the decision to classify them short or long term affects how these assets are valued on the balance sheet.
Short-term investments are valued at market value and any fall in their value is recorded as a loss. However, increases in value are only noted when the item is sold. This means that classifying an investment as long or short term has a direct impact on the reported net income of the company owning the investment. Analysts are looking for changes in long-term assets as a sign that a business can liquidate to cover its current expenses – usually a problem if it continues.
Investing in the long term for individuals
For many people, saving and investing for retirement is their main long-term project. While it is true that other expenses require a multi-year effort, such as buying a car or buying and paying for a home, retirement is the main reason most people have a wallet. . In this case, we are encouraged to start early and invest often. Using both a long-term perspective and the funding power, individual investors can use their retirement and retirement years to take prudent risks. When your time horizon is measured in decades, market downturns and other risks can be mistaken for the long-term rewards of higher overall returns.