What is Long Term
Long term refers to the extended period of time that an asset is held. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more.
Generally speaking, long-term investing for individuals is often thought to be in the range of at least seven to ten years of holding time, although there is no absolute rule.
BREAKING DOWN Long Term
The media frequently advises people to "invest for the long term," but determining whether or not an investment is long term is very subjective. A day trader, for example, would define "long term" much differently than a buy-and-hold investor, who would consider anything less than several years to be short-term trading.
Long-Term Investments for Companies
A long-term investment is found on the asset side of a company's balance sheet, representing the company's investments, including stocks, bonds, real estate and cash, that it intends to hold for more than a year.
When a firm purchases shares of stock or another company's debt as investments, determining whether to classify it as short-term or long-term affects the way those assets are valued on the balance sheet. Short-term investments are marked-to-market, and any declines in their value are recognized as a loss. However, increases in value are not recognized until the item is sold. This means that classifying an investment as long- or short-term has a direct impact on the reported net income of the company holding the investment.
Long-Term Investing for Individuals
According to the Financial Industry Regulatory Authority (FINRA), investors who are planning for a large multi-year expense such as retirement can work to reach their financial goals by thinking of long term in the following way:
"For many people, the number one long-term goal is a financially secure retirement. But it's also a goal with a long time horizon. When your goal is paying for college, for example, you think in terms of paying costs for four years – or, perhaps, a few more for a post-graduate or professional degree.
But when you think about retirement, you have to think in terms of managing expenses for 15, 20, 30, or maybe even 40 years that you'll be living after retirement. Since you'll need income for that entire period, it is important to make your money work for you, and this means earning a rate of return that outpaces inflation and allows your principal investment to grow over time."
FINRA also advises investors to stay flexible and adapt their financial plans as needs and priorities change over time.