The future of long term investing is dependent on the long term investor changing their investments beliefs to suit the post economic crisis climate.
Introduction:
The current financial crisis has caused concern that investment objectives have a short horizon and there is more weight on these short term objectives rather than on growth and the creation of value in the long term. Corporations need to know what the long term investment outlook is to enable them to plan for the future. Investors in the long term play a part in having a economically stable environment. While the markets seem to have all the short term capital they need there is doubt about capital in the future.
The Future of Long Term Investing:
An investment is considered long term if it runs for more than ten years. This is more or less in line with a whole business cycle. This means that the asset classes which are perfect for investing in the long term are obviously riskier and are much more liquid than other assets. The class of asset which meets these criteria is venture capital, private equity and strategic stake holdings in private equity. It used to be that the traditional long term capital came from the pension funds and life insurances, however recent imposed constraints have meant that managed funds amounting to $67 trillion can only allocate 25% of the total as long term investments.
Long term investors have more to think about that the short term investor in terms of what their liability profile might be, what are their long term investment values, what is their appetite for risk, the diversification of the portfolio in terms of liquid and illiquid assets and of course how long does it take to make an investment decision.
However there are benefits to long term investing which the short term investor does not have. There are opportunities for higher returns in the long term for the investor or individual corporations. It is also a way of stabilizing the financial markets, kick starting economic growth and bring social benefits to many more people.
For the investor also there are other benefits such as no decision is needed as to whether to buy high or sell low. Costs can be drastically reduced particularly transaction costs and a long term investment does not disturb or cause volatility in the forex markets.
The economic crisis has highlighted the need for long term investors to change their strategy and look at ways in which they can diversify their portfolios efficiently without incurring increased risk. The crisis caused traditional correlations to decline and others to increase which in turn made portfolio management more difficult.
Investment beliefs have been challenged as has risk exposure regarding liquidity and new regulations which are constraining.
However there are signs that long term investors are returning to the long term markets and are seeking investments that have the return they desire but also the risk and volatility profile that suits their new investment beliefs.
The current financial crisis has caused concern that investment objectives have a short horizon and there is more weight on these short term objectives rather than on growth and the creation of value in the long term. Corporations need to know what the long term investment outlook is to enable them to plan for the future. Investors in the long term play a part in having a economically stable environment. While the markets seem to have all the short term capital they need there is doubt about capital in the future.
The Future of Long Term Investing:
An investment is considered long term if it runs for more than ten years. This is more or less in line with a whole business cycle. This means that the asset classes which are perfect for investing in the long term are obviously riskier and are much more liquid than other assets. The class of asset which meets these criteria is venture capital, private equity and strategic stake holdings in private equity. It used to be that the traditional long term capital came from the pension funds and life insurances, however recent imposed constraints have meant that managed funds amounting to $67 trillion can only allocate 25% of the total as long term investments.
Long term investors have more to think about that the short term investor in terms of what their liability profile might be, what are their long term investment values, what is their appetite for risk, the diversification of the portfolio in terms of liquid and illiquid assets and of course how long does it take to make an investment decision.
However there are benefits to long term investing which the short term investor does not have. There are opportunities for higher returns in the long term for the investor or individual corporations. It is also a way of stabilizing the financial markets, kick starting economic growth and bring social benefits to many more people.
For the investor also there are other benefits such as no decision is needed as to whether to buy high or sell low. Costs can be drastically reduced particularly transaction costs and a long term investment does not disturb or cause volatility in the forex markets.
The economic crisis has highlighted the need for long term investors to change their strategy and look at ways in which they can diversify their portfolios efficiently without incurring increased risk. The crisis caused traditional correlations to decline and others to increase which in turn made portfolio management more difficult.
Investment beliefs have been challenged as has risk exposure regarding liquidity and new regulations which are constraining.
However there are signs that long term investors are returning to the long term markets and are seeking investments that have the return they desire but also the risk and volatility profile that suits their new investment beliefs.
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