In finance and investment long term assets are those assets that cannot be converted into cash for more than a year. As almost all things have its pros and cons so does long term assets. These assets have their share of advantages and disadvantages.
Advantages Of Long Term Assets
Stability: Long term assets provide stability to the company. When a company ours in huge cash in order to buy a fixed asset it is actually securing itself for the future. Many companies sell their fixed asset to meet the cash crunch.
Tax Deductions: With the exception of gold and land, long term assets depreciate. Depreciation can occur due to basic wear and tear, obsolescence and expiration. When an asset depreciates it comes under expense. Therefore the net profit taxable is reduced and so the company has to pay less tax. So it is beneficial for companies when their fixed assets depreciate.
Back Up: Long term assets serve as back up especially post retirement. Long term retirement plans ensure steady cash flow so that you can live your retirement peacefully.
Growth: Long term assets help in the growth of a company. For example if the company wants to increase production then it has to invest in equipments, machinery and maybe even property. Though requiring huge amounts of capital, long term assets prove too beneficial for the company in the long run.
Holding Period: The holding period of a fixed asset is usually more than a year. This ensures that the company does not sell off its fixed assets in haste. The fixed tenure also ensures periodic dividends as profits. For example, mutual funds are long term assets that many times provide periodic dividends. Similarly holding on to land is beneficial as after some years the cost of the land appreciates and if sold, the company or individual will gain profit. The same applies for gold. However gold ornaments due to wear and tear will depreciate.
Returns & Tax benefits: Stocks with longer duration give high returns. The longer you put in your savings either in schemes or insurance or bonds the higher will be the returns. Most long term assets such as bonds, stocks, pension schemes provide tax benefits.