In this article, we will take a look at the 10 disadvantages of long-term investments. If you want to skip our detailed analysis, you can go directly to the 5 Disadvantages of Long-Term Investments.
“It Depends on the Product and Where You’re At”
On November 22, Jeff Krumpelman, Chief Investment Strategist at Mariner Wealth Advisors, appeared in an interview on CNBC where he discussed the recent positive direction the stock market has taken. In the interview, Krumpelman discusses how rising dividend yields were previously a huge concern for investors; however, with recent economic changes, the yields have decreased. Such has ultimately pushed the percentage of stocks trading above the 10-day or 50-day moving average from 10% to 70% and 20% for stocks trading on a 200-day moving average. While discussing the performance of stocks, Krumpelman adds that value stocks have been outperforming growth stocks, and equal weight stocks have outperformed market cap weight stocks. Krumpelman suggests that the market has broadened, which is a good sign that the market is moving in the right direction.
Furthermore, in response to a discussion on the appropriate stock portfolio, Krumpelman discussed his barbell approach to investing. He mentioned that both growth and value stocks are interesting, but to him, investing in particular companies trading at attractive valuations is key. He added that investors must be specific with their investments and focus on stocks with strong fundamentals. He also gave an example of the retail sector and the importance of focusing on the bigger picture of separate individual companies. You can also check out some of the biggest investment trends this year.
Stocks Trading with Strong Fundamentals
Before investing, investors are urged to make wise choices by prioritizing the quality of the stocks they are investing in. Let’s check out some of the best stocks seen as long-term investments. These include Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and The Coca-Cola Company (NYSE:KO). Let’s check out some of these companies’ recent financial and news updates.
Microsoft Corporation (NASDAQ:MSFT) is a leading multinational technology company based in the United States and is considered one of the most reliable and stable companies for long-term investment. On November 8, Microsoft Corporation (NASDAQ:MSFT) announced a strategic co-innovation collaboration with Photonic Inc. The collaboration is focused on unleashing the future of quantum networking by implementing new techniques. Microsoft Corporation (NASDAQ:MSFT) will be able to execute its goals by using Photonics’ novel spin-photon architecture. The framework supports quantum communication via telecom wavelengths. The two companies will collaborate to enhance the use of quantum networking capability in day-to-day activities and operations. The collaboration will be executed in three stages. To shed light on the collaboration, Jason Zander, Executive Vice President of Strategic Missions and Technologies at Microsoft Corporation (NASDAQ:MSFT), stated:
“We are thrilled about joining forces with Photonic in improving the world through quantum technologies. There is an opportunity to ignite new capabilities across the quantum ecosystem extending beyond computing, such as networking and sensing, and unlocking applications and scientific discovery at scale across chemistry, materials science, metrology, communications, and many other fields. The capabilities we aim to deliver with Photonic can enable this vision and bring about quantum’s impact far more quickly than otherwise possible.”
Microsoft Corporation (NASDAQ:MSFT) was a part of 306 hedge fund portfolios at the close of the third quarter of 2023. The total stakes of these hedge funds amounted to $72.19 billion, up from $69.79 billion in the previous quarter with 300 positions. The hedge fund sentiment for the stock is positive. As of September 30, the Bill & Melinda Gates Foundation Trust is the largest shareholder in Microsoft Corporation (NASDAQ:MSFT) and has a position worth $12.40 billion. The stock covers 31.87% of the fund’s portfolio.
Pfizer Inc. (NYSE:PFE) is another prominent name considered a long-term investment. The pharmaceutical company is based in New York, United States. On October 20, Pfizer Inc. (NYSE:PFE) announced that the US Food and Drug Administration (FDA) approved PENBRAYA. PENBRAYA is the only pentavalent vaccine protecting common serogroups that result in the prevalence of meningococcal disease among young adults and adolescents between the ages of 10 and 25. The decision came after the FDA assessed data from the vaccine’s phase 2 and phase 3 trials. The results suggested that the vaccine has a robust immunogenicity non-inferior to rumenba + Menveo for all serogroups. The vaccine is suitable for people with a standard safety profile. To shed light on the new vaccine, Annaliesa Anderson, Ph.D., Senior Vice President and Head, Vaccine Research and Development, at Pfizer Inc. (NYSE:PFE), stated:
“As a pioneer in vaccines, one of our goals is to deliver vaccines that evolve the paradigm and help simplify the standard of care in the U.S. Today marks an important step forward in the prevention of meningococcal disease in the U.S. In a single vaccine, PENBRAYA has the potential to protect more adolescents and young adults from this severe and unpredictable disease by providing the broadest meningococcal coverage in the fewest shots.”
Wall Street is positive on Pfizer Inc. (NYSE:PFE). On November 20, Cantor Fitzgerald analyst Louise Chen reiterated an Overweight rating on Pfizer Inc. (NYSE:PFE) and maintained her price target of $75. Over the past 3 months, 5 Wall Street analysts have recommended to Buy the stock. Pfizer Inc. (NYSE:PFE) has an average price target of $39.91 and a high forecast of $75.
The Coca-Cola Company (NYSE:KO) is a leading beverage company based in Georgia, United States. On October 25, The Coca-Cola Company (NYSE:KO) announced that it is set to launch 100% recycled plastic bottles across Canada early in 2024. As per the report, the company announced that it will no longer use virgin pet bottles for its plastic water bottles. The initiative will also be supported with a “Recycle Me Again” campaign to raise awareness and push people to participate.
The Coca-Cola Company’s (NYSE:KO) commitment to its responsibility to society explains its strong financial results. On October 24, The Coca-Cola Company (NYSE:KO) reported earnings for the fiscal third quarter of 2023. The company reported earnings per share of $0.74, beating estimates by $0.05. The company reported revenue worth $11.91 billion, ahead of market consensus by $488.72 million and up 7.31% year over year.
While these stocks are well-known long-term investments, Investors are requested to use their own judgment while making investment decisions. If you are starting your investing journey you may check out the best investments for beginners. With that, let’s take a look at the 10 disadvantages of long-term investments.
10 Disadvantages of Long-Term Investments
Our Methodology
We employed a consensus approach for determining the 10 disadvantages of long-term investments. Since it is a very subjective topic, it was quite challenging to make our list. We sifted through expert opinions online to curate our list of the 10 disadvantages of long-term investments. Our sources included reports published by Forbes, Investopedia, CNBC, and the Corporate Finance Institute. We then studied each of the disadvantages separately and included them in our list in no particular order. We have included specific details, explaining the implications of each disadvantage.
It is to be noted that we are in no way coercing our readers to shy away from investing in long-term investments. Instead, the list focuses on the general drawbacks of investing in a long-term portfolio. Our list contains relevant details highlighting how certain disadvantages can be minimized or prevented.
10 Disadvantages of Long-Term Investments
10. Liquidity Constraints
According to our methodology, people investing in long-term investments tend to face several liquidity constraints. Liquidity constraints refer to the limitations investors face when trying to liquidate their assets. Long-term investments are less liquid, and therefore, investors must set aside an emergency fund to prevent such issues.
Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and The Coca-Cola Company (NYSE:KO) are some of the top blue chip stocks to buy according to Wall Street analysts.
9. Opportunity Cost
Investors investing in long-term investments often have to let go of profitable short-term opportunities or other profitable asset classes or portfolios. However, this disadvantage is strictly based on an investor’s investment goals. An investor with a solid investment goal and portfolio may not be impacted as much as an investor with a lack of direction.
8. Limited Flexibility
Long-term investors must wait for their securities to mature before they are allowed to get their cash. Having lock-in periods limits the ability of investors to divert resources and are often unable to account for changing events. However, stocks or mutual equity funds happen to offer a certain level of flexibility to investors.
7. Emotional Stress
According to our methodology, long-term investments come with a great degree of emotional stress. Long-term investments can be stressful especially when markets are fluctuating or volatile. While long-term investors do enjoy the benefit of recovering from losses, the process may be a nerve-wracking experience.
6. Limited Diversification
Investing in long-term investments is a huge commitment, that often hinders the ability of being able to diversify an investor’s portfolio. Diversification is particularly important to minimize risk, therefore, investors directing their resources to long-term investments may have to miss out on potential gains from other investments, such as young and high-growth tech companies, which could potentially be more riskier.
Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and The Coca-Cola Company (NYSE:KO) are some of the best long-term stocks to buy according to hedge funds.
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Disclosure: None. 10 Disadvantages of Long-Term Investments is originally published on Insider Monkey.