Life is unpredictable and a risk that requires income to solve the problems that may arise. To survive or have a quality life, you must have an income in one way or another. This is the reason why investing is essential. Investing helps us accomplish our financial goals and enables us to cater to unseen expenses that arise in the future.
For example, today your car may in good shape, but you have no idea what will happen in the next 24 hours. If it happens to break down, will you have to wait till your next paycheck to repair it? How about more crucial issues such as health? Would you wait till you get paid to visit a hospital? That is why we should always aim at investing and saving money to helps us solve issues that crop up in our lives.
There are two major categories of investments: long-term investments and short-term investments. This article will help you understand what the two categories entail and the benefit of each one of them.
What Are Long-Term and Short-Term Investments?
1) Long-term investments
These are assets, items, or instruments bought and held by the buyer for a period exceeding three years. Most of the long-term investments go up to ten years or more. People use these investment portfolios to save money or accrue funds for future use. This means that you won’t need the money for immediate needs. Long-term investment portfolios include mutual funds and stocks.
You must understand what each investment plan entails, how it works, and what you should do to get the maximum benefit. If you choose to buy stocks as your investment method, do research on a company with insider stock selling.
This will not only help you save your hard-earned money but also protect you from getting on the wrong side of the law. If you go for the retirement benefits plan, know how soon you will enjoy your benefits after your retirement.
2) Short-term investments
Short-term investments are all assets, items, or instruments bought and held for less than three years. In most cases, it is usually a year. These investments are usually suitable for immediate goals and needs. Such investments include bonds, treasury bills, money market accounts, and certificates of deposits. Investors that choose to use the short-term investment portfolios should consider those that have very low market risks. Although it might not guarantee that you will get positive returns for your investment, it will indeed reduce the risks of losing all your investments.
Which Investment Decision Is More Intelligent?
Both long-term and short-term investments have a lot of benefits to the investors. They only have slight differences, which include:
Time
A long-term investment will take years before you can withdraw funds from your account. On the other hand, the short-term investment will only take months or less than three years to get your funds. This means that a person who aims at investing for their retirement won’t need a short-term investment.
Goals
People invest for various goals; for example, a vacation. Would you buy a long-term investment to save for a vacation? Definitely no. That means your goal best describes the type of investment that will suit your need best.
Risk
While the short-term investment requires that you time the market, long-term investments give you less worry about when you will sell. All you do is set a time frame and stick to it. The best thing about a short time investment is that you can take advantage of the market cycles and can make significant returns in a short period. This will only happen if the market is favorable. There are a lot of risks associated with investing in a short time.
Bottom line
Now that you understand the differences between short-term and long-term investments, you can clearly make a good choice for an investment portfolio. Other questions that you may need to ask yourself before making your choice include: how long will you withdraw the funds, do you invest a lump sum, or will you pay in bits? How will taxes affect your investment?
Answering these questions will help you know what investment plan is best for you. What works best for one person might not work for you since there are different needs, goals, and risk tolerance.
