Long-Term Investment – Definition, Types and Risks of Investment

Saving with style? Investment is the answer.

However, investing should not be arbitrary and random. Because investing wrongly only gives you endless losses. For this reason, learning investment strategies is very important before deciding to invest in anything.

One of the important parts of developing an investment strategy is knowing and understanding the type of investment that will be selected and adjusted to the needs. One of them is to choose the type of investment based on the time period.

Investments based on time period are divided into three types, namely:

  • Short term investment
  • Medium term investment and,
  • Long term investment

Now of the three types of investment, long-term investment can be said to be a fairly popular choice. Whether it’s as savings for marriage, traveling or business capital when you have entered retirement.

So, what is a long term investment?

Understanding Long-Term Investment

Long-term investment is an investment where the power used will be run continuously and can only be disbursed if the time period has matured (at least one year). Long-term investment can be said to be the same as investing in wealth or capital from a person or a company in order to get a steady income.

The long-term investment goals include:

  • Get a fixed income in each certain period. Fixed income from having long-term investments can be in the form of:
    • flower,
    • royalty,
    • dividend,
    • rent money,
    • and other forms of shareholding gains (for example).
  • Establish special purpose funds, for example for expansion purposes, product expansion etc.
  • Realizing personal/family financial goals that require very large costs such as:
    • education fund,
    • Umrah/Hajj pilgrimage fees,
    • wedding expenses, house buying costs,
    • pension cost,
    • and so forth.
  • As the controller of a company or certain person with capital ownership.
  • Ensuring the availability of production raw materials in the market for the products to be produced.
  • Directing company funds specifically. For example, for social purposes or for the sake of the expansion of a company.
  • Reduce competition among similar companies.

Examples of Long-Term Investment

After knowing the purpose of long-term investment ownership, you also need to know the types of long-term investments that are popularly owned in Indonesia. Examples of long-term investments include:

1. Stock

Stocks are a type of long-term investment that is quite popular for both long-term and short-term investments, depending on needs. Shares are evidence of a person’s participation or ownership in a company or limited liability company.

If you own shares, then you can already be called the owner or owner of the company, depending on how big the ownership portion is. Shares are divided into 2 types, namely common stock and preferred stock. Common stock is a description of the actual ownership of a company.

2. Gold

As one of the beautiful precious metals and loved by many people, gold is a type of long-term investment that is quite profitable. Gold has a value or price that always increases every year. In addition to having a high selling value, gold is also very safe in various circumstances and is stable and anti-inflation.

Because the value of gold goes up more often than it declines, so if you invest in gold for 5 years, you can get multiple benefits

3. Bonds

Bonds are proof of providing loans to the issuer of bond securities which must be repaid when the maturity date. One type of bond that is quite popular and has a fairly high yield is ORI (Indonesian Retail Bonds).

Access to ORI has also become easier now, because several state-owned banks and private banks have participated in marketing it. You can start this investment from a fairly light value, starting from only IDR 1 million. For the maturity period, ORI can be disbursed after 2 or 3 years, depending on the initial agreement when buying it.

In addition, ORI is also guaranteed by the state, so investors do not have to worry about the amount of funds deposited.

4. Mutual Funds

Mutual funds are known as an investment alternative for people who have excess funds who do not have much time and expertise in calculating their investment risk and are suitable as an example of long-term investment for novice investors.

Mutual funds can be a profitable investment because they have advantages. The advantage of mutual funds lies in the many choices that investors can take to invest their money, namely stocks, bonds, or the money market.

5. Unit Link Insurance

Unit link insurance is a type of insurance that is often used as a profitable long-term investment by many people. Unit Link is an insurance that is classified as a non-traditional type of insurance. The definition of unit link is a type of insurance that combines two financial products, namely insurance and investment products.

In unit-linked insurance, it is as if customer funds are split up and put into two baskets, some are included in the insurance premium basket for protection or protection purposes and some are deposited by the insurance company to the investment manager to be managed as an investment, usually in mutual funds.

6. Land and Building

Land and buildings have long been known as goods or products that have a high and profitable investment value. Land and buildings are a type of long-term investment that is very profitable with a low level of risk, because land and buildings are types of property that have a higher asset value every year.

However, this investment requires large funds, considering that the price of a house has now reached the price of hundreds of millions to billions of rupiah. Even so, try to take advantage of property purchase credit products such as mortgages (people’s housing loans) that can help you get the property you want.

Long-Term Investment Risk

Just like other types of investments, long-term investments also carry risks. If you are interested in investing in this type of long-term investment, here are some investment risks that you should know:

  • Market Risk

Market risk occurs because of financial sentiment which is often referred to as systematic risk. Market risk will always be experienced by investors and cannot be avoided.

Factors that affect market risk include political issues, changes in the political climate, unrest and economic recession which greatly affect the market.

  • Interest Rate Risk

Interest rate risk on long-term investments is the risk that arises due to the relative value of interest-bearing assets such as loans and bonds deteriorating due to rising interest rates.

In general, if there is an increase in interest rates, it is inversely proportional to bond prices which will decrease. Interest rate risk on long-term investments can generally be measured based on the term of the bond.

  • Inflation Risk

Inflation risk is also known as purchasing power risk. This is related to the increase in consumption prices which causes the purchasing power to decrease from the community. The main reason is that there is too much money in circulation. With inflation, the value of money will decrease.

  • Liquidity Risk

Liquidity risk can be defined as the risk caused by the difficulty of providing cash within a certain period of time.

Example: there are parties who are unable to pay their obligations on the due date in cash.

Even though the party has assets whose value is sufficient to pay off obligations. However, these assets are difficult to convert into cash or these assets can be classified as illiquid.

  • Forex Risk

In long-term investment, foreign exchange risk is the risk caused by the dynamics of changes in exchange rates in the market.

Example: investors make investments that require them to use US Dollars.

At the same time, the Rupiah exchange rate against the US Dollar has decreased, so investors have to spend a larger amount of Rupiah than when the Rupiah strengthened

  • Country Risk

In long-term investment, country risk is called political risk. This means that investment can fail if the country is in a precarious situation and there is a riot.

Even more serious is the coup against the legitimate government. Political matters should be read as a serious long term investment risk.

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