(New) Long-term investment is to solve short-term issues from a long-term perspective

April 14, 2025
by Noriyuki Morimoto

Pension funds are corporations that are assumed to exist permanently. As long as the pension system is expected to continue, the fund’s assets will not be paid out, but only the fruits of their management will be used as a source of benefits. Therefore, the purpose of asset management is to steadily gain the planned earnings each year, so to that extent, it has a short-term nature.

Also, assuming a situation where the system cannot be continued for some reason, the assets should be distributed to the members and beneficiaries at that point in time. Therefore, when preparing for emergencies, pension funds must always be worth more than the cost of the benefits at the time of liquidation, which also presents a short-term issue.

In this way, the management of pension funds is about continuing to achieve short-term issues indefinitely, and it is by no means asset management to address long-term issues. As long as the system continues, there is no end, so the concept of long-term, which assumes a fixed term, cannot be applied from the outset. People talk about long-term investment when it comes to pension fund asset management, but it should rather be called indefinite-term investment.

In addition to pension funds, institutional investors such as foundations and insurance companies are also perpetual corporations that engage in indefinite-term asset management. But since natural persons inevitably die, their asset management is of a fixed term. And whether that term is long or short depends on how the funds are used. Securing funds for a long-term vacation abroad in two years’ time is a short-term issue, making a down payment on a house in ten years’ time is a medium-term issue, and a working person’s efforts to build funds for post-retirement living is a long-term issue.

Even if the nature of the funds being managed is not necessarily long-term, we must always take a long-term perspective when approaching investment. In this sense, it is not wrong to emphasize the importance of long-term investment to individual investors. However, rather than long-term investment in the technical sense, it is more important for individuals to understand that investment is essentially a fixed term, and to be aware of the appropriate period for each use of funds.

 

[Category /Investment Philosophy]