The life span of an investment is a key factor influencing its risk and return. Generally speaking, the longer the life of an investment, the higher return it can generate and the lower risk it bears. This is because long-life investments like infrastructure and real estate can better withstand short-term market fluctuations. They have more time to recoup temporary losses and realize their full profit potential. Additionally, long-life assets tend to retain their value better and face lower depreciation or obsolescence risks. From a portfolio perspective, having more long-duration assets helps smooth overall volatility and ensure stable cash flows. However, ultra-long investments also come with liquidity tradeoffs that investors should consider carefully.
Withstanding market fluctuations
Assets like toll roads, pipelines, office buildings or apartment complexes are meant to operate for decades. Temporary downturns or even crashes in valuation may not impact their profitability over the entire holding period. Investors can ride out storms more patiently, without resorting to fire sales that lock in losses prematurely. The great investor Warren Buffett has profited enormously from this long investment horizon.
Realizing full profit potential
Certain projects like mines, wind farms or commercial developments need 5+ years just to be constructed and become operational. Only after that can they start yielding cash flows for investors. Impatient selling before the asset delivers its full profit potential means leaving lots of money on the table. Patience pays substantial dividends for those with conviction in the underlying business case.
Lower depreciation
Capital goods like machinery or technology become obsolete faster with each passing year. In contrast, infrastructure and property see slower wear & tear and can preserve capital better. For example, well-built apartments may command similar rents with just facelifts after 30-40 years. Even adjusting for maintenance costs, their net cash flows decay more slowly than those from short-life equipment.
In summary, long-life investments enable higher total returns and lower risk owing to their resilience against temporary volatility, ability to realize full profit potential over time and slower decay in value. But investors must also consider their potential liquidity tradeoffs.