The concept of long-term investments has gained popularity recently as many look to them to supplement their regular income during difficult times.

But, how do you determine which long-term investments are good for you?

To help you make more informed decisions, make sure your investments fit the criteria below.

1. They have steady, regular dividends and returns

Long-term investments are not supposed to generate the highest returns for you, but provide stability in your financial journey.

Steady means that you can expect a certain range the investment will give you every year. For example, when you invest in a fixed deposit, the bank promises you a fixed return of 4.0%.

Regular means that you will get a constant stream of dividends and returns every year without fail.

In short, look for investments that generally have low risks and are considered safe. With these investments, you do not need to worry about whether they would go suddenly sour.

2. They are under reputable and well-established management

The people or management behind the investments play a key role in establishing investors’ confidence in them. After all, you want your investments to be handled and managed by experienced professionals that know what they are doing.

On top of that, they need to be very patient with their investments, holding on to them even when they are performing well or worse.

Look for investments whose management does not take excessive risk and has a well-established track record of delivering constant returns.

There are two ways of determining this, depending on whether you want to invest in a fund or in the companies themselves.

If you are interested in investing in funds such as unit trust funds or exchange-traded funds, you can find out more on their profiles through Fundsupermart.

You should also look at the company managing their investments. If they are names of banks or financial institutions that you recognise, rest assured that they are at least reputable.

On the other hand, if you are interested in investing in the companies directly, start by scanning through the constituent companies in the Kuala Lumpur Composite Index, otherwise known as FBMKLCI, for the top 30 companies in the market.

Once you have identified the companies you are interested in, you would need to identify the credit ratings of their debt as determined by Rating Agency Malaysia (RAM) and Malaysian Rating Corporation Berhad (MARC).

The higher it is, the better you can regard the management team.

3. They are simple to understand

You are going to hold the investments for a very long time, so it is important that they are simple to understand.

For example, if you invest in a long-term fixed deposit, you just need to understand that the bank has to give you the promised returns no matter what (provided you don’t violate any of the terms).

If you are investing in a company, read the brief description of the company in Bloomberg or Wall Street Journal.

Try to picture in your mind how they generate their revenue and profits. If you can’t, forget about it.

4. They have low or no management, service or transaction fee

Additional fees could make or break your long-term investment journeys. They may take on different names, but will ultimately cost you.

Look for investments that have the lowest fees as charges might be incurred annually.

In unit trust or mutual funds, you will be charged management fees that are percentages of your total investments. This will range from 1% to 2%.

If you are looking to buy stocks, be aware that you are incurring higher transaction costs the more stocks you accumulate for your portfolio. Look for trading houses that charge the lowest transaction cost.

If you are putting your money into fixed deposits, be aware of the hidden costs associated with setting up, withdrawing, and transferring your money in the accounts.

Ask your banker to explain, in detail, what you will be charged for having fixed deposit investments with the bank.

5. They are recession-proof

One of the hallmarks of long-term investments is that their performance should theoretically ignore the overall market conditions.

Generally, government bonds and fixed deposits are recession-proof investments, as they will guarantee the returns you are getting no matter the economic conditions.

For stocks, look for traditionally defensive sectors that generate constant dividends for you such as banking and telecommunications.

Other than that, if you want to adopt a more technical approach, you can select stocks that have a low correlation to the market performance. This means that the price won’t change much despite market unpredictability. Most investors term this the stock beta.

For example, Public Bank currently has a beta of 1.06 while CIMB has a beta of 1.57, meaning that CIMB changes much more in the overall market compared to Public Bank.

A beta of more than 1 means that the share price of that company changes more than the market change, while a beta of less than 1 indicates the opposite.

6. They have strong fundamentals

This is probably more relevant for more sophisticated investors who are looking to analyse the company’s business and financial fundamentals for long-term holding prospects.

However, you can quickly analyse a company even as a beginner with the following guidelines:

• Revenue growth needs to be steady at around 3% to 5% every year
• Consistent profit every year (no losses)
• Profit margins need to be stable

Search for the company you are interested in here, and go to the chart titled “PBBANK Financial Highlights” and change it to “Annual”.

You can check out a company’s revenue and profit for the past five to seven years, and then determine its trends.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.