How to Make Long Term Investments to Lead a Secure Life?

Long term investments in share market show rewarding results; they help to fulfill the set goals. To achieve them, what are we to do? Design appropriate plans to accomplish them.

How much money we need to have by the time you retire to lead a peaceful and unencumbered retired life?  A residential home, children’s education, their marriages – for fulfilling these tasks how much time you can wait? In the process of achieving them, are you prepared to bear the risk of loss?  What is the percentage of investments in your gross savings, in Mutual Funds, Fixed Deposits, Bonds and fixed assets?  These are the questions generally an investor faces and put him in a fix. To get proper answers to them, one should have precision in understanding, which in turn helps to get good returns in long term investments. 

Before investing in mutual funds or equities, we have to introspect the purpose for which we are making such investments. Investment in share market needs many points to be taken into account. Especially, when our money in shares is likely to be locked up for quite a longer time, we need to study the invested Company’s business philosophy. If found satisfactory, regular investments in shares, would give us the benefit of compounded interest along with tax exemptions. You cannot achieve bigger goals without long term investments, since the amounts in small and medium term investments will generally be diverted to meet the routine needs. Basically there are two types of long term investment plans in equities: they are – growth oriented investments and value based investments.

Growth oriented investments: 

Investments will be made in the shares, where opportunities for growth are many. Doubt arises as to how to identify them. When the performance of a company is recorded as better than the average performance of parallel companies or it is perfectly competing with the gross performance of the entire market, we can conclude that there is possibility of growth in it for our investment. People in this category give importance to such of those companies, which are performing well now and likely to continue so in future also. They feel that better performance is the index for better results and accordingly invest in them.

Risk of Loss: We cannot completely rule out the risk of loss in growth oriented investments. Expecting a good growth rate, we may select high priced shares, but when they fail to meet our expectations, we have to bear such losses.

Value Based Investments 

It means planning to invest when the prices of the shares of a company are less than the real value of the shares of that company. Tactfully they plan and own such shares when the share value is more and its price in the market is less. Either when scaling up or sliding down, market reactions will be unpredictable. They feel that the present share prices do not reflect the long term performance of companies and that they are subject to price fluctuations of shares in the market and therefore, when the market is at its ebb, they purchase the shares of performing companies at lower prices. Like that the investor looks for ‘margin of safety’.

Risk of Loss: Even while purchasing shares at substantially lower prices, it cannot be ruled out the possibility that investor in making miscalculation of share values.

By purchasing value based share of Rs.100 for Rs.50, value-based-share-investors protect their share values even when the market is in the down trend making a lot of bargaining in the stock prices; whereas investors with growth-oriented concept, purchase share of value Rs.100 for Rs.150, if they feel that the share takes the process of growth.

For those, who do not want to bear the risk of loss, value based share investment shall be the best choice and for those who are prepared to accept risk of loss, growth oriented investment shall be appropriate.

Reviewing is essential:

Investors should periodically review the market trends, while investing in it. How much can be invested in equity and money market instruments? When the market is healthy, naturally investments in equity give good profits. In such environment, transfer a part of equity investment to debt. When market is in corrective mood, reverse it i.e., transfer back the funds from debt to equity. However, care should be taken to maintain equilibrium in investments in equity and debt.

Keep cash handy:

Collapsing market sometimes gives good opportunity for investment. If cash is kept handy, such situations can be best utilized and it also facilitates to maintain equilibrium in investments.

Selection of Shares:

Share prices will become opportune for purchase when market is slowing down. Short and medium term investors take advantage of such situation to go in for stocks, for which keep the shares of some companies selected and invest in them to take advantage when market is in down trend.