We cannot ignore or deny the power of long term investing. The principles of long term investment are in tune with the simple virtues of life such as patience and perseverance that always bear fruits. Historical data of the stock market proves that equities offer the best opportunity for wealth creation in the long-term. Returns from equity-based investment options such as unit linked insurance plans (ULIPs) have also shown how long term investment plans help generate wealth.
Iconic investor and billionaire Warren Buffet credits his success to the combination of long term and value investing, which is the method of buying undervalued shares. When Buffet selects companies to invest, he always looks for those that will still remain competitive after 10 or 20 years . A long term investment plan combined with value investing is a powerful tool for generating wealth. Many successful investors have proved this fact time and again.
You can also follow the example of highly successful investors and allow your capital to grow with a long term investment horizon. When you treat your money like a plant, water it regularly and allow it enough time to grow, you can certainly expect a tree with many fruits in the long run.
Benefits of Long Term Investments
1. Protection from volatility
Volatility is the degree to which the prices of an asset fluctuates over time and increased volatility creates increased risk of investments. ULIP, being an equity-linked investment plan, is directly affected by volatility in the equity market. If an investor is looking for short-term gains in these investment instruments, he may be discouraged seeing the value of his portfolio erode in a volatile market. However, those with a long-term perspective can use market volatility to their advantage.
For instance, if you are in for the long haul with unit linked insurance plans, you will not be concerned about short-term market volatility. In fact, when your ULIP fund value is down and the net asset value (ULIP NAV) declines, you are able to purchase more units of the funds. And when the market bounces back, it helps you to boost your wealth. Investors who stick for the long term are the ones that get rich; irrespective of the investment instrument. Long term investment plans always show less volatility compared to short term investments. Also, assets with higher volatility in the short-term such as equities display higher returns in the long-term.
2. Gives you a winning mind-set
A long term investment option is always better than a short term one if you are looking to create long lasting wealth. And if you want to be wealthy by investing, you need to have the right mind-set. To be a successful investor, it’s very important to rise above your emotions, especially fear, greed and despair.
A short term investor may stop paying his ULIP premium if he sees the NAV decline by a few points and hence lose great opportunities of creating wealth. However, those with a long term investment horizon know that these fluctuations are cyclical in nature and they will enjoy better returns if they stick to the investment plan.
3. Leverages the power of compounding
Long term investing helps you leverage the power of compounding.
For example, if you are investing in a ULIP plan the total fund value accrued is reinvested every year and thus your fund value keeps on increasing each year. The minimum lock-in period in a ULIP is 5 years; therefore, a policyholder can build a sizable corpus if he has planned his investment and is paying his premium regularly. Investors with an investment horizon of 10 years or more can really witness the power of compounding work in ULIPs.
4. Greater tax benefits and lower costs
ULIPs are one of the preferred tax saving instruments.
The premium paid against a ULIP policy is eligible for tax deductions under Section 80C, and the maturity value or death benefits are also exempt from tax under Section 10(10D) of the Income Tax Act, 1961, subject to provisions stated therein.
5. Enables goal-based investment
A long term investment plan can be customised according to different life goals and milestones thus supplying you with finances when you need the most. You can plan your investment to fund your child’s higher education or marriage or build a corpus for your retirement. You can also start a long-term investment plan to buy your dream home after a certain number of years.
ULIP plans allow you to switch funds and make changes in your fund allocation based on your, risk profile and investment horizon. It helps you to meet your investment goals in spite of volatility in the capital markets.
Benefits of buying a long term ULIP plan
Online insurance products and ULIPs have been a game changer for the financial industry. Companies are now able to reach a larger customer base and meet the insurance and investment needs of millennials who are looking forward to achieve their long term life goals.
Long term ULIP plans online has enjoyed widespread popularity since its inception because it has many benefits, such as:
- Cost effective - Online ULIPs cost lesser because there are no intermediary costs involved, hence the larger portion of your premiums are allocated to the funds selected by you.
- Saves time - You can purchase your ULIP plan from the life insurance provider’s website. Getting your life goals done in just a few clicks is possible.
- Easy to research and compare - One of the top advantages of buying financial products online is that you can easily research and compare. Many policyholders are not aware how a ULIP plan works and how it’s different from a traditional insurance plan. While buying online they have enough time to learn about the product, take expert advice, track past performance and compare ULIP policies from various insurance companies. Hence one can make an informed decision after doing an extensive research.
- No paperwork - Maintaining and storing physical copies can be cumbersome and risky. If you lose and damage these documents, it can lead to a lot of hassles at the time of maturity or while making a death claim. As companies are getting digital now a days and providing the best experience to their customers, you can opt for getting your policy serviced online even if you’ve purchased the policy offline. All you need to do is log on to your respective customer portal and service your policy as per the features provided by the company.
How to make the best of long-term investments?
Long term investment can work wonders for your portfolio and your wealth but there are certain strategies you need to follow to get the best results.
Don’t put your entire money in just one or two investment instruments. You need to maintain a balance to create a holistic portfolio. However, you can also diversify your investments within a single instrument. You can do so with your long term ULIP investment by spreading your investments in equity, debt and mixed funds
2. Know your risk tolerance level
Don’t be overly cautious and conservative in your investments when you have another 30-40 years left for retirement. Don’t be too adventurous if you have just 10-15 years left before you hang your boots. Your risk appetite should be proportionate to your age, financial status and duration of investment. You should get more conservative about your fund allocation in ULIPs when your plan approaches maturity.
3. Choose the right investment option
You should select the right investment instrument to succeed in long term investment. The decision to choose the right investment vehicle should be based on your investment goals, investment horizon and risk appetite. What may be right for others may not be the right fit for you, so don’t go by popular opinion when it comes to making investment decisions.
ULIPs are one of the preferred investment options for a long term investor. If you are a new investor, diving headlong into the stock market can be an unwise decision. Therefore, it’s better to start with a ULIP plan and continue investing for at least 5 years or longer.