A long-term investment is any investment that has the possibility of getting maximum returns when invested over a long period of time (usually over five to ten years). Long-term investments require patience in order to gain maximum value out of them. Good long-term investments have the following features, they:
- Are usually low risk
- Guarantee long term growth
- Need less management compared to short-term investments
- Have profitable returns in the long-term
Types of Long-Term Investments
Some long-term investments are:
- Treasury Bills
These are issued by the Government of Kenya through the Central Bank of Kenya. When you invest in a treasury bill you are loaning money to the government for a specific period of time. When the loan is due, the government repays the original amount with interest.
- Unit Trusts
A unit trust is a type of investment where money is pooled together by a group of investors sharing the same investment objectives. The funds are controlled by managers who invest the money in various financial assets. Unit trusts are a way of diversifying your investments with the aim of minimizing risk.
- Stocks(Shares)
In Kenya people invest in stocks of companies that are listed in the NSE (Nairobi Securities Exchange) through investment bankers or stock brokers. Basically, you buy the shares at a low price and later sell them at a higher price, for a profit. You, as the stockholder can also decide to retain the shares and earn dividends from the company.
- Real Estate
Land and property have become a popular and profitable long-term investment options in Kenya. With land, one can purchase a piece and then divide it into smaller plots and sell them after a significant period of time for high returns. You can also choose to develop property on the land and earn rental income as you wait for the right time to sell it. Most real estate usually appreciates in value.
Advantages of Long-Term Investments
- Long-term investments are less volatile and relatively stable compared to short-term investments. A long-term investor focuses on the growth prospects or viability of a venture, rather than market factors, as short-term investors are prone to do.
- The money you invest appreciates over time through compounding. Compounding is the reinvestment of profits or dividends over time to generate even greater returns.
- Long-term investments are generally passive in nature and are relatively easier to manage than short-term investments.
To make wise investment choices, research on the various options available. Select the options you can afford and match your future requirements. Remember to begin small then proceed to diversify your investment. This way you increase your investment portfolio and reduce risk.
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