One common advantage of a long-term investment is:

• A. Immediate liquidity and access to cash
• B. Guaranteed protection against all market risks
• C. Exemption from all forms of taxation
• D. The potential for higher returns due to compounding over time

Answer: (D)

Verified step by step guidance

1. Understand the concept of long-term investments: Long-term investments are assets or securities held for an extended period, typically more than a year, with the goal of achieving growth or income over time.
2. Recognize the principle of compounding: Compounding refers to the process where the returns earned on an investment are reinvested, allowing the investment to grow at an accelerated rate over time.
3. Identify the advantage of long-term investments: The potential for higher returns due to compounding over time is a key benefit, as the reinvestment of earnings can lead to exponential growth.
4. Compare this advantage to other options: Immediate liquidity and access to cash, guaranteed protection against market risks, and exemption from taxation are not typical benefits of long-term investments. These features are more associated with other financial instruments or strategies.
5. Conclude that the correct answer is based on the principle of compounding, which highlights the potential for higher returns over an extended period.