Long-term Growth

What is long-term growth (LTG)?

Long-term growth (LTG) is an investment technique intended to boost the value of a portfolio over time.

Even though long-term is related to an individual's style and time horizons, long-term growth is typically intended to generate above-market returns over a 10-year or more extended period.

Due to the longer period, long-term growth portfolios may be more aggressive in owning a bigger share of equities than fixed-income products like bonds. For example, a long-term growth fund might be 80% equities and 20% bonds, whereas an intermediate-term balanced fund might be 60% equities and 40% bonds.

Frequently Asked Questions (FAQs)

Explain the term 'long-term growth'?

Long-term growth is intended to do just what it says- expand your portfolio over time. The warning is that growth could be uneven.

A portfolio is a set of financial instruments, including cash, stocks, commodities, bonds, cash equivalents, exchange-traded funds (ETFs), and closed-end funds. Cash, bonds, and equities are commonly seen to be the foundation of a portfolio. However, a portfolio can also include diverse assets, such as private investments, art, gold, and real estate.

One of the essential principles in portfolio management is the wisdom of diversification, which tries to maximise returns by investing in various sectors that might react differently to the same event.

Long-term growth portfolios may underperform the market in the first few years before outperforming later, which is a risk for long-term growth fund investors.

Even if a fund has provided high average growth over a decade, its performance will fluctuate from year to year. Hence, investors might have a wide range of results depending on when they buy into the fund and how long they retain it. Thus, timing investments is a challenge that affects all investors, not only long-term growth fund investors.

How is value investing related to long-term growth?

Short-term pricing swings are less of a problem when long-term growth is achieved. Likewise, several value investors focus on equities with long-term growth potential, seeking firms with excellent fundamentals that are comparatively cheap. Then, before selling, they wait for their value to rise as the market recognises their fundamental strength.

In addition, value investing is an investment technique that requires identifying stocks that appear to be trading at a discount to their intrinsic value. Value investors look for firms that they consider to be undervalued by the market. They believe that the market overreacts to both good and negative effects, resulting in stock price movements that do not reflect a company's long-term fundamentals.

Warren Buffett is currently the most well-known value investor. However, there are many others, including Seth Klarman; a billionaire hedge-fund manager, Charlie Munger, Benjamin Graham (Buffett's mentor and professor), David Dodd, and Christopher Browne (another Graham student). 

The basic principle of everyday value investing is simple. If you know how much something is worth, you can save a lot of money by buying it on sale. For example, most folks agree that you will get the same TV with the same picture quality and screen size if you buy a new TV on sale or at full price.

Stocks act similarly, which means that the stock price might fluctuate even if the company's valuation or value remains constant. Stocks, like televisions, go through phases of lower and higher demand, resulting in price volatility, but this has no bearing on the value you receive for your money.

Individual investors frequently have a long-term growth mindset, which can lead to value investing as a tactic. However, long-term growth refers to the extended period over which returns are desired, rather than a specific investment strategy such as value investing.

Long-term funds are likely to participate in the stock market through various indexing products as they seek low-cost stocks. Fund managers may find it challenging to commit to long-term value investing.

Even though long-term growth fund investors are advised to expect a reasonable average return over several years, less patient investors are free to exit unless the fund has a lock-up period, typically found in private or hedge funds.

If a long-term growth fund experiences a string of bad years, investors will begin to withdraw money searching for higher market returns. This may compel a fund to reduce its holdings before the market value of the equities catches up with their fundamental value.

How does long-term growth in the real estate market work?

A property market may be witnessing a demand-supply imbalance. High prices have a significant impact on demand. Investors can employ long-term growth to avoid entering a market nearing the end of its previous price boom.

The significance of long-term growth is similar to that of market cycle timing (MCT), which can be utilised to schedule market entry. However, it can protect investors from entering a market that has already achieved its peak for some time.

Long-term growth is just one of the aspects that may contribute to a property market's ability to enjoy robust growth, but it's especially crucial near the end of a big bull run.

Moreover, analysing a property market from all perspectives and seeing favourable indicators can give the investor more confidence in the market's nature.