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Investment Simplified > Investment > Inspired by Warren Buffet? Know Everything About Long Term Investment to Build Wealth
Investment

Inspired by Warren Buffet? Know Everything About Long Term Investment to Build Wealth

Lakshey Bahl
Lakshey Bahl April 30, 2022 9 Min Read
Updated 2022/06/22 at 5:14 PM
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A wise man named Warren Buffet once said – “if you don’t find a way to make money while you sleep, you will work until you die.” 

Contents
Benefits of Long-Term Investment  Best Long-Term Investments You Should Know About Investing for Better Life: Know the Rules for Long Term Investment  FAQs

It’s not that we don’t like working. For some people, the work they do is truly their passion, but having a side income doesn’t hurt anyone. Right? Now you can create extra income through a side gig, or you can be smart and choose a long-term investment.  

We often come across commercials and advertisements that highlight the importance of investing. More than often, we ignore those and move ahead into our day. But that’s not what’s going to happen today. This guide is all about long-term investments, and there’s no way you can skip.  

Key Takeaways

  • Long term investment puts aside your funds for future use.   
  • Choosing long term investment plans, such as real estate and equity, helps create a source of side income.  
  • Every investor must understand their risk tolerance before investing.  
  • Diversifying your portfolio reduces the chance of losses.  

Benefits of Long-Term Investment  

Before you think of saving as an investment, you must know that the two work quite differently. A long-term investment is more than building rainy day savings.  

Practically, savings means putting aside your funds for future use. Economists often call it ‘forgone consumption’. Precisely, it means tipping some money into a savings account rather than spending it all at once.  

Undoubtedly, savings is a sensible start to investment and helps provide funds needed to improve your lifestyle. But investment is a step ahead of savings that helps you achieve personal goals with three major benefits.  

Healthy Long-Term Returns 

While saving implies setting aside a part of your income for the future, investing means putting your funds to work to earn better returns in the long run. Different long term investment plans generate different returns.  

If you take a look at the historical returns, growth assets such as shares and property had the best overall returns. As an investor, you can earn capital growth in the long run along with an ongoing income (rent from property or dividends from shares).  

Fight Inflation  

The term inflation implies an increase in the cost of living over time. Sadly, it can impact your financial well-being.  

You can beat inflation by investing in assets that can create better returns and also offer the potential for capital growth.  

Earn Side Income  

The best long-term investments can help earn a side income.  

You can use the return on investment as a regular source of income for everyday expenses. Even better, you can reinvest the money to further grow your wealth.  

Best Long-Term Investments You Should Know About

By now, you already know that long-term investment comes with several benefits. These investments are the ones you hold for more than 3 years and require commitment even in times of financial crunches.  

Moving ahead from the basics, there are a lot of long-term investment plans you can put your money into. So now is not the time to scroll as we talk about the best long term investment plans.  

PPF and EPF  

Public Provident Fund (PPF) is one of the most popular long term investment plans. It provides an interest rate of 8.7%, has tax benefits under section 80C, and the interest is also exempted from tax.  

Now that’s what you call a great deal! 

PPF is great for individuals with a low-risk appetite looking to save money over the long run for retirement. Contributions made to PPF as EPF qualifies for tax benefits. You can claim benefit for a maximum investment of 1.5 lakhs under section 80C of income tax. While you can invest more than that, you cannot claim further tax benefits.  

Mutual Funds  

Mutual funds are for investors who want to invest in stocks and equities, mainly to balance their risk and return. You can invest in several types of mutual funds, depending on your risk capacity.  

Best long term investment plan

Plus, you can also invest in mutual funds through a systematic investment plan. With SIP, you make payments at regular intervals, which reduces the market risks by building a portfolio over time.  

ULIPs 

ULIP, short for Unit Linked Insurance Plan, is a unique long term investment plan. It enables you to put your money into various equity and debt funds according to your risk appetite.  

The premiums you pay for ULIP get deducted from taxable income under section 80C, and the returns, too, are tax-free. Plus, part of premiums is also used to provide life coverage.

ULIP is a useful investment instrument to meet several financial goals, such as retirement planning, child’s education, and making a down payment for the house, among several others.  

Gold Bonds  

Buying gold is an evergreen investment. You can invest in gold in several formats – gold ETF, gold bar, gold deposit scheme, sovereign gold bond and gold mutual fund.  

Real Estate  

Real estate is indeed a booming industry. Buying property is both satisfying and lucrative. The prices of properties keep rising. Plus, you can also get regular income in the form of rent.  

So, besides the potential capital gains, you also get a second source of income.  

Did You Know

According to a recent report by Colliers India, private equity investments in Indian real estate totalled US$ 2.9 billion in the first half of 2021, up more than twofold from the first half of 2020.

Investing for Better Life: Know the Rules for Long Term Investment

At the start of the first covid lockdown, the stock market witnessed a major correction, which led many investors to redeem their equity investments to contain their losses. Such periods of uncertainty provide a good reminder to the investors that investment is a long-term proposition.  

If you can be calm and stick to the plan during the market’s up and down, you can witness a huge impact on your investments in the long run.  

Read through the best practices for long term investment that can help you avoid making costly mistakes and keep you on track for achieving financial goals.  

Understand Risk Tolerance  

With investment comes risk. This is because temporary market declines are inevitable and can happen even outside a global pandemic like covid 19.  

Your risk tolerance is the amount of market risk you are comfortable with experiencing. It will help you guide asset allocation – the mix of bonds, stock and cash in your portfolio.  

Confusing enough? Wait, we’ll make it easy for you.  

Tarun has a high-risk tolerance, which means he can afford more losses just in case the market crashes. So, he holds a larger proportion of stocks, which offer great returns but are also more likely to lose value.  

On the contrary, Rahul has a low-risk tolerance and prefers bonds as they offer small returns but are less likely to reduce in value.  

No doubt, Tarun and Rahul are smart investors. They are keeping their risk tolerance in mind while investing. This will help them stick to their plan during challenging marketing conditions. Plus, it will also save them from panicking and making emotionally driven decisions in case of a market drop.  

Diversification is the Key  

Once you’ve figured out your risk tolerance, the next thing to do is diversify your portfolio. This will reduce the chance of any particular asset’s performance having an outsized effect on your portfolio.  

For instance, if you have four stocks and one of them performs poorly, it will have a huge hit on your portfolio. But if you have different stocks and bonds, you remain protected even if one of them does not do well.  

Avoid Timing the Market  

You might be tempted to pull out money from the market in case you predict a market setback. But believe us, doing so can hurt your returns.  

Market downturns, as well as rebounds, are hard to predict. Plus, it gets even worse when emotional reactions get mixed with amateur predictions. As a result, you can miss out on some exceptional returns.   

Don’t Forget Your Goals  

You built your portfolio keeping long term goals in mind. So, no matter how tempting it seems to make short-term decisions, such as pulling out of stocks, you should not do it. Remember your long-term goals and how they will help you stay disciplined.  

Word to Remember

Capital Growth  

Also known as capital appreciation, capital growth means an increase in the value of an asset or an investment over time.  

Conclusion

When it comes to investing money, there are myriads of ways you can take. But choosing the best long term investment plans cuts down on the investment risk by eliminating lost opportunities.  

Entering and exiting the market by timing can lead to huge losses. On the other hand, long-term investment helps you save for the future and provides healthy returns.  

So don’t wait any longer. Build a solid portfolio of long-term investment instruments to get ahead financially and achieve your financial goals.  

 FAQs

How can I invest wisely?

To invest your money wisely, you must separate savings from investments. Secondly, you must start investing sooner than later. Plus, in-depth research is important to choose the right investment instruments.

Why should I choose long term investments? 

Investments held for a longer period (more than 1 year) tend to exhibit lower volatility. Thus, the longer period you invest, the more you will be able to weather low market conditions. 

What is the golden rule of investing?

The golden rule to investing your funds is diversifying your portfolio. You must hold different types of investment instruments that will perform differently over time and reduce overall risk.

Also Read: 3 Year Investment Plans & 1 Year Investment Plans

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