People often opt for short-term and long-term securities when it comes to investments. However, they make a common mistake of following their friends and family for investments. Business experts in the field state that investments are an individual discretion, and you must always consult a financial advisor over a relative or a friend to make the right choice.
Kavan Choksi – An overview of long-term investments and how they function
Kavan Choksi is a credible business expert and entrepreneur fond of travel and photography. According to him, you must first understand what it means when it comes to long-term investments.
Understanding the difference between a short-term investment and a long-term investment
The short-term investment is largely different from the long-term one because it is generally sold within a year. An investor often sells the long-term investment after some time, and in a few cases, it might never be sold at all.
As a long-term investor, this means you are ready to accept a specific level of risk for higher rewards with patience. It also means that you have the ability to have that amount of money locked up for an extended period of time.
Salient features of long-term investments to note for new investors
The following are some salient features of a long-term investment-
- A long-time investment refers to an account that an organization or an individual plans to retain for at least one year, like real estate, bonds, stocks, and cash.
- In a company, long-term investments appear on the assets segment of the balance sheet.
- Investors who go in for long-term investments are ready to take higher risks for better rewards.
- Long-term investments differ from several short-term investments that people generally opt for selling within one year.
Long-term investments for entities – An overview of the term “held to maturity.”
If any entity wants to retain an investment until its maturity with the company demonstrating its ability to do so, this investment is called a “held to maturity” investment. It is recorded at a price with any discount or premium amortized during the lifetime of the investment.
An example of the held-to-maturity investment is the purchase of the credible company PayPal by eBay, which took place in 2002. When PayPal increased its user base and infrastructure, it transformed itself into its own company in 2015 along with a 5-year agreement for processing payments continuously for eBay. This investment contributed to the successful growth of PayPal and, at the same time, permitted eBay the benefits of being the owner of a global solution for payment processing over two decades.
According to Kavan Choksi, this investment that was intended for the long-term might have been written down as a reflection of an impaired value. However, here they are no short-term market fluctuations and adjustments. When it comes to held-to-maturity investments, you cannot group equity securities under them. Only investments can be placed under held to maturity because they have an end date.