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Long-Term Investment: Definition, Objectives, Risks and Types

Long-Term Investment: Definition, Objectives, Risks and Types - At this time, investment is increasingly in demand by various groups of people. Because almost everyone can invest with a capital that is not large. If in the past it was considered that investment could only be done by those who had large capital, this is very different from investments that have developed in today's era where everyone can invest anytime and anywhere. But before investing, it's good to need a deep understanding of investment. Let's look at the following reviews to increase your knowledge about investing.

Understanding Long-Term Investment

According to Investopedia, long-term investment is the investment of assets for a period of more than one year with the aim of controlling other companies. This means that long-term investments do take quite a long time, it can be up to a year or more to achieve high returns.

In addition, according to IDX, long-term investment is an investment where the power used will be run continuously and can only be disbursed if the period has matured (at least one year).

In this case, 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.

One of the goals of long-term investment is for personal or family financial savings that require very large costs such as education funds, the cost of buying a house and others.

Long-Term Investment Goals

It turns out that there are several goals that are owned in making long-term investments such as:

  1. Get a fixed income in any given period. Fixed income from owning long-term investments can be in the form of interest, royalties, dividends, rent, and other forms of share ownership gains.
  2. Long-term investments for entrepreneurs can be used for the purpose of establishing special purpose funds, for example for expansion purposes, product expansion and others
  3. For individuals, it aims to realize personal or family financial goals that require very large costs such as education funds, Umrah or Hajj costs, wedding costs, house buying costs, pension costs, and so on.
  4. Directing special funds, such as funds for social purposes or funds for the benefit of the expansion of a company
  5. Controlling a particular company or person with ownership of a business or asset

Long-Term Investment Risk

Despite the potential for profit, as an investor you must also be careful. Because every investment has risks. In long-term investing, it is called the principle of high risk and high return. For long-term investments, the higher the risk, the higher the potential return.

Investors should carefully observe the principle of high risk and high return. As long as you can manage it, the return on investment will be in accordance with the results achieved in the future.

For long-term investment, you must understand at least six risks. Namely: market risk, interest rate risk, inflation risk, liquidity risk, currency risk and country risk.

Market Risk

The risk caused by financial sentiment is often referred to as systemic risk. This is what investors often experience and cannot be avoided. Even in extreme cases, investors may experience the worst-case scenario, namely loss of capital.

Factors such as negative issues, changing political climate, civil unrest, and economic recession have a huge impact on the market charts. For example, the impact of the Covid-19 virus outbreak has not only hit Indonesia, but the whole world. The impact on the market has weakened all global economic activity, from falling stocks to fluctuations in the exchange rate of the rupiah against the US dollar.

This situation caused many investors to panic and start withdrawing most of their funds to prevent the value of their investment from falling further. In this case, investors do not need to panic. Because usually only temporarily and if the situation returns to normal, then all prices will stabilize again.

Interest risk

Interest rate risk is the risk caused by the relative value of interest. This is caused by changes in interest rates in the market. So it will automatically affect the value of the investment. Generally, when interest rates rise, bond prices fall, and vice versa.

Interest rate risk of this kind can be measured using maturing bonds. For example, the bond interest rate is 8%-10%, then the retail sukuk issued by the government is 13%. Therefore, investors will definitely be more interested in government retail Islamic bonds.