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James Chen, CMT is an expert trader, investment adviser, and global market strategist.
Updated May 04, 2023 Reviewed by Reviewed by Anthony BattleAnthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant® designation for advanced financial planning, the Chartered Life Underwriter® designation for advanced insurance specialization, the Accredited Financial Counselor® for Financial Counseling and both the Retirement Income Certified Professional®, and Certified Retirement Counselor designations for advance retirement planning.
Fact checked by Fact checked by Suzanne KvilhaugSuzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.
"Long term" refers to the extended period of time that an asset is held. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more. Generally speaking, long-term investing for individuals is often thought to be in the range of at least seven to 10 years of holding time, although there is no absolute rule.
"Long term" is one of those phrases that is so ubiquitous in finance that it has become difficult to pin down a specific meaning. The media frequently advises people to "invest for the long term," but determining whether or not an investment is long-term is very subjective.
A day trader, for example, would define "long term" much differently than 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, anything less than several years may be considered short-term.
A long-term investment is found on the asset side of a company's balance sheet, representing the company's investments, including stocks, bonds, real estate, and cash, that it intends to hold for more than a year.
When a firm purchases shares of stock or another company's debt as investments, determining whether to classify it as short-term or long-term affects the way those assets are valued on the balance sheet.
Short-term investments are marked-to-market, and any declines in their value are recognized as a loss; however, increases in value are not recognized until 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 holding the investment.
Analysts look for changes in long-term assets as a sign that a company may be liquidating to cover current expenses; generally, a problem if it continues.
For many individuals, saving and investing for retirement represents their main long-term project. While it is true that there are other expenses that require a multi-year effort, such as buying a car or buying and paying off a house, retirement is the main reason most people have a portfolio. In this case, we are encouraged to start early and invest often.
Real estate is often considered to be a long-term investment. Individuals that buy a house usually sell it many years after they have bought it or they own it until the mortgage is fully paid off.
Profitable securities sold after a year are subject to capital gains tax as opposed to ordinary income tax for securities sold under a year.
Stocks, mutual funds, and exchange-traded funds (ETFs) can either be long-term or short-term investments, depending on how long they are held for. An individual can buy a stock and sell it if it appreciates in a few weeks or months. Conversely, the same stock can be held for years and sold until it has appreciated even more.
Using both a long-term outlook and the power of compounding, individual investors can use the years they have between themselves and retirement to take prudent risks. When your time horizon is measured in decades, market downturns and other risks can be taken for the long-term rewards of a higher overall return.
Long-term investments are any securities that are held for more than a year, generally. These can include stocks, bonds, real estate, mutual funds, and exchange-traded funds (ETFs).
A long-term investment strategy aims to hold an investment security for a year or more. Long-term investment strategies come with a higher amount of risk due to the unpredictability of future outcomes. Furthermore, the goal is price appreciation over a long period, rather than immediately, which means riding out dips in a security's price. Long-term investments should also be part of a diversified portfolio to reduce long-term volatility.
Gold has long been considered a good investment to hedge against inflation as well as a store of value; however, data has shown that both stocks and bonds have outperformed gold in the long term, on average. Depending on the specific period, however, gold can outperform stocks and bonds.
Marketable securities can be most investments, including stocks, bonds, and exchange-traded funds (ETFs). Marketable securities are considered current assets and are expected to be sold in less than a year, usually a few months. These types of securities are typically liquid securities that can be sold easily as there is a large number of buyers.
Long-term securities are less liquid because they need to be held for a longer time to realize a profit. In many cases, they are also not easily sold. For example, a house is considered a long-term investment; one that takes time to appreciate and that cannot be sold quickly. Bonds with longer maturities also have higher payouts over time but need to be held longer for a higher yield.
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Description Related TermsThe conversion price is the price per share at which a convertible security, like corporate bonds or preferred shares, can be converted into common stock.
The target payout ratio is a goal companies set for the amount of earnings they intend to pay out as dividends. The ratio is important to the company and shareholders.
A sophisticated investor is a type of investor with significant net worth and experience, permitting advanced investment opportunities.
An unrealized gain is a potential profit that exists on paper resulting from an investment that has yet to be sold for cash.
A direct stock purchase plan (DSPP) enables individual investors to purchase stock directly from the issuing company without a broker.
A holding period is the amount of time an investment is held by an investor or the period between the purchase and sale of a security.
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