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Short Term VS. Long Term Investments: Which Is Best?

by Editor

When it comes to short term and long terms investing, there are benefits and pitfalls. Find out which method will suit your financial portfolio.

What suits you? Short vs. long term investments

The general rule of thumb is that property is the ideal long term investment while a short term investment is in essence anything that a trader or investor holds on to for one year or less. Short term investments typically carry great volatility, hence their appeal for quick gains but also their risk of great loss. Regrettably, there are no get rich quick schemes in this world.

Investing has traditionally been the domain of the investment banker or portfolio manager, all that however has changed quite dramatically in the last 10+ years. The internet as a tool for business and access has continued to evolve in terms of scope and speed, presenting opportunities to many who may not have had them before.

As a result the world of investment has grown exponentially with daily trading on speculation alone hovering in the vicinity of $5 trillion. If you’re going to invest, be it long term or short term, you’ll want to know what they both entail. 

Short-term investments

As noted earlier, a short term investment is one that an investor or trader will keep for up to one year or less. The length of such investments can vary tremendously, so much so, that it can fall into the category of ‘day trading’ – speculation on securities, currencies or commodities – in which the buying and selling gets done on the same day. 

Most of the time a trader or investor will hold on to a short term investment for a period of months in the hope of profiting off the volatile nature of the asset.  Common attributes of a short term investment include sudden price movements within a short period,  as mentioned already – volatility, and high liquidity – allowing for the sale of the asset to be done quickly.  Short terms investments include stocks – an online guide to FTSE 100 Index and share prices would be a good place to start – options, volatile assets, securities, commodities etc. 

Long-term investments

A long term investment is any financial instrument that you elect to keep for more than a year.  A typical example of a long term investment would be the purchasing of blue-chip stocks.  These are stocks of well-established companies and corporations such as Apple, Coca-Cola, Disney and IBM. The best way to invest long-term in the stock market is to purchase an index fund.

Growth on such stocks might be slow, but it’s also likely to follow an upward trajectory.  To this day real estate remains the go-to investment option for long-term investing. Property is the one asset that doesn’t typically depreciate. It tends to accrue its values over a period of years, thus making it a good fit for a long-term investment portfolio. Other common investment options in this sphere of finance includes bonds and mutual funds.

Time horizons: additional definitions

These are terms and definitions that cover long and short term investing. They will recap some of what has been said before.

A short term time horizon

A short term time horizon is an investment or stock purchase you don’t plan on keeping for more than a year.

A medium term time horizon

A medium term horizon is an investment or stock purchase that you intend to hold on to for anything between one year and a day and ten years. Due to the amount of time allotted for such an investment, if a loss or losses occur, there’s enough time for the asset to recover.  Investments, stocks or assets for a medium horizon include well-researched emerging entities that carry moderate risk profiles. 

A long term time horizon

A long-term horizon is any investment or stock purchase that you intended to keep for a period exceeding 10 years. These investments possess stability and present the trader/investor with the opportunity to choose something that could be deemed as risky, but thanks to the long period of time, could also bare tremendous fruits. 

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