In today's era, many new investment instruments are emerging, and one of them is Mutual Funds. The emergence of Mutual Funds is a breakthrough in the investment world as it offers various advantages.
For investors who hesitate to buy stocks directly, they can now invest their funds in Equity Mutual Funds. The risk level is lower compared to buying stocks directly in the capital market, but with the potential for lower returns.
In Mutual Fund investments, the time horizon significantly influences the profit value. If you want to maximize your returns, it is recommended to choose long-term investments, especially in Equity Mutual Funds.
5 Benefits of Long-Term Investments
In investments, there are several timeframes to choose from: short-term, medium-term, and long-term. The timeframe can be chosen based on the underlying investment goals.
Long-term investments are usually carried out for more than 5 years for significant investment purposes, such as preparing for the family's future, building a retirement fund, buying a house, and more. Here are some benefits of long-term investments:
- Cultivating a Frugal Lifestyle
Long-term investments can help cultivate a positive character, namely a frugal lifestyle. Continuously investing over an extended period will make an individual more frugal.
A portion of their monthly income will be allocated for investment needs. This condition is excellent for the future, especially if done consistently. There will be no more complaints about a lack of money thanks to the frugal lifestyle in practice.
- Minimizing the Impact of Inflation
Every year, inflation reduces the value of assets and wealth, resulting in a continuous decline in your net worth if not addressed. One way to anticipate this is by investing some assets in potential instruments, such as Equity Mutual Funds.
Through investments, you can earn additional income to cover the impact of inflation each year. This will maintain or even increase an individual's wealth.
- Obtaining Passive Income
Everyone who works would have active income every month, but not everyone has passive income. Having passive income allows you to achieve financial goals faster.
There are many ways to achieve this, and one of them is through investing. Equity Mutual Funds investment in the long term will help you generate attractive passive income.
Having two sources of income will increase financial stability, so you don't have to worry about finances in the future.
- Achieving Financial Freedom at a Young Age
Another benefit of long-term investments in Mutual Funds is helping you achieve financial freedom faster, even at a young age. When you reach this stage, you don't need to actively work to meet daily needs.
All these needs have been met through investment returns. Consequently, you can enjoy retirement earlier than others. However, achieving financial freedom takes a considerable amount of time, so consistency in increasing the investment value is crucial.
Understanding the compounding effect can help multiply your wealth. The longer the timeframe, the higher the potential compounding effect you will gain.
- Preparing for Old Age
If the investment value is not significant enough to reach financial freedom, at least you have started preparing funds for old age. A pension fund is an essential part of financial planning, especially for private sector employees who lack old-age guarantees.
Through long-term investments, you can prepare funds for future use in old age. While young, it is advisable to start setting aside money for investment as a pension fund when you are no longer productive.
Risks of Long-Term Investments to be Understood
Investing in Mutual Funds in the long term is beneficial, but do not ignore the risks involved. By understanding these risks, you will be more cautious in deciding on the chosen investment path. Here are some risks of long-term investments that need to be understood:
- Inflation
Inflation affects the performance of various investment instruments, not just Mutual Funds. It poses a challenge to investors, especially if funds are invested in instruments that cannot counteract inflation. This can significantly decrease the value of assets.
- Domestic Economic Conditions
The rotation of investment funds is closely related to domestic economic conditions. The more unstable the conditions, the more the performance of Mutual Funds is disrupted. The worst-case scenario is investment failure, resulting in significant losses. To anticipate this, you must stay updated on national economic issues.
- Global Economic Conditions
Not only the domestic economic conditions, global economic conditions also affect the fund rotation carried out by Investment Managers. For example, the pandemic that paralyzed the global economy some time ago.
- Changes in Interest Rates
The returns of some types of Mutual Funds are also influenced by changes in benchmark interest rates due to changes in market conditions. For example, Money Market Mutual Funds, which mostly allocate their funds to Bond and money market sectors.
- Market Fluctuations
Similar to stocks, the performance of Equity Mutual Funds is also influenced by market fluctuations. This happens due to market sentiment. The investment capital allocated by the Investment Manager may decrease due to market fluctuations. This risk is also known as systematic risk and is unavoidable.
- Liquidity Issues
Not all Mutual Funds can be withdrawn immediately. Some Investment Managers may take time to liquidate investor funds, mainly because they do not have enough cash to redeem the funds. Therefore, they need a specific period to liquidate their investment assets. To avoid this, it is advisable to choose experienced and reputable Investment Managers.
Mutual Fund Investment with DBS Treasures
Investing is a mandatory financial plan if you want to increase your asset value. DBS Treasures can be your partner if you want to invest your assets safely and comfortably. You don't need to hesitate because there are many relatively safe and reliable investment asset options to help you diversify your investment funds. Diversification will help minimize risks and improve investment performance to maximize profits.
Be supported by curated market analysis from a team of financial experts who will communicate it. Seize the latest opportunities that have been tailored to your risk profile and portfolio needs, driven by Artificial Intelligence/Machine Learning (AI-ML). This insight is equipped with curated solutions related to investment (Grow) and insurance (Protect), so you can quickly and confidently invest through your preferred media.
With this support, you don't need to hesitate to invest in Equity Mutual Funds because all the guidance and information available are tailored to your needs. To start investing, you need to register as a DBS Treasures priority Client! Click here for comprehensive information.
