Long-term investments are vehicles that you can expect to pay off after holding them for a period of several years. When investing long-term, you can be more aggressive because you have a longer time horizon, so you could opt to invest in an aggressive mutual fund to get the highest rate of return.
You can approach long-term investing by determining the rate of return you want, then looking for a mutual fund that averages that rate of return over a five to 10-year period. When you invest for the long-term you must not panic when a stock's value drops and avoid selling just because the market looks bad.
The market is cyclical and always recovers from drops, although it may take time to do so. However, if you pull out when prices are low, you may lose a portion of the money you initially invested. It helps if you avoid watching your portfolio often, and if there's a dip in the market, sit tight and don't pull out your money. Let the stock prices recover over time.
When you decide how much risk you can bear, keep in mind that the longer you have to invest your money the bigger the risks you can take. If you need the money in the next few years, take a more financially conservative approach to your investments and opt to invest in a more secure type of investment. Another factor in choosing the type of investment may be what you are planning on using the money for. This may determine how much risk you feel comfortable with while investing.
Long-term investments are more suitable for investors looking to save for a long-term goal, such as retirement or a college fund. You won't earn much of a return if you put money into a long-term investment that you plan to sell in three years, or if you want to use the funds for a more short-term goal, like a vacation.