A long term investment opportunity is one that
could be defined a few different ways.
One way to define a long term investment
opportunity is common stock. Common
stock are securities representing equity ownership in a corporation, providing
voting rights, and giving the owner of the shares an opportunity to participate
in the company's success through dividends and/or capital appreciation.
A long term investment opportunity option would be
the growth derived from the investment like common stock. Growth is defined as the amount of money management
invested on day one and then the amount of money the investment is worth ten
years (or any period of time) from day one.
A long term investment
opportunity could also yield income to the investor. The income producing vehicle could be one of
many different types of long term investment
opportunity options.
A Business as a
Stock Investment Opportunity
An individual
might decide to invest in a long term investment
opportunity such as small business corporation (like a local restaurant). The small business typically takes time to
grow and a company would issue shares that would provide equity ownership and might
produce a steady stream of income (monthly for instance) that is much higher
than the normal investment like a certificate of deposit or a treasury bond.
An important
consideration is the risk factor. As
most people are aware the amount of risk associated with government backed
securities (treasury bonds) is basically nil.
The reason is that the United
States government issues the security and
backs their value. The only real risk is
the United States
government defaulting on their debt payments (like treasury bonds) and if that
happens there would be a slew of other issues confronting the investor besides
their treasury investment. I think we
can assume that will never happen and we should also hope it never
happens.
The risk factor
with investing in a long term investment
opportunity like a small business is that the single best investment opportunity (like a small business)
could fail. All of us have seen the
local restaurant or dry cleaner close down due to lack of business or being a
poorly run business. Since we are
discussing small businesses as a long term investment
opportunity let us examine this as a representation of a single
investment.
The failure rate
of small start up companies is high (fewer than 4 out of 10 make it beyond 3
years according to some reports) and putting funds into such a business is
risky. As with any long term investment opportunity, an individual
is seeking either a higher stream of income or a higher rate of return. However, it is unlikely that any investor
would like to lose their initial investment and that is why alternatives to
investing in a small business exist.
Financial Growth
with a Safety Net
Diversification
is a concept that has evolved from being an unknown factor in the world of
investing into something that is part of most individual investor’s
vocabulary. Diversification is an
investment strategy designed to reduce exposure to risk by combining many
different investments, such as stocks, bonds, and real estate, which are not
likely to increase or decrease in value at the same time. The goal of diversification is to reduce the
risk in an individual’s portfolio. Volatility
is limited by the fact that not all asset classes or industries or individual
companies move up and down in value at the same time or at the same rate. Diversification reduces both the potential
increase and the potential decrease and allows for more consistent performance
under a wide range of economic conditions.
Popular and
Successful Choices
The most popular
form of diversification and the easiest to understand is the use of mutual
funds. Mutual funds represent a great
opportunity for individuals seeking a long term investment opportunity.
Mutual funds pool money from many investors and place the money in stocks,
bonds, or other securities. Mutual funds
can also invest in a combination of the three. They are managed by a
professional portfolio manager who actively adjusts the funds' portfolio to try
to increase their value.
A very popular long
term investment opportunity would be
a common stock mutual fund. These funds
typically invest in stocks of companies that present either a unique long-term
or short-term investment opportunity
for the individual investor. These
investment opportunities represent the potential for a return that is far above
normal yet also present risks that are above normal too.
Any individual
seeking to gain financial independence should take a look at alternative long
term investment opportunity options. There are many different investment vehicles
that can be used as a long term investment
opportunity and a few have been discussed in this article. The key is to remember that a long term investment opportunity is just part of
an overall plan to achieve financial independence.
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