INVEST IN SHORT OR LONG TERM?
If you already read the previous posts, you should know or guess the answer...
With the interest rates at the lowest historical level and with the expectation of falling further, making money has become more difficult and requires taking more risks. To set up an investment plan, it's important to adapt the portfolio's assets to its objectives and risk profile. You should ask yourself, do i need my money quickly or can i wait and expect more in search of higher returns?
Short term investments
The short-term approach is more popularly known as trading, i.e., buying and selling of financial assets within a relatively short turnaround time like within a few hours, a couple of weeks or at most a few months.
The suggestion is to allocate investments with low to medium risks and with the possibility of quick redemption, for a very simple reason: if you need the money in a short time, you cannot take risks and depend on the volatility of the market.
Short-term investments should be sold or converted quickly.
Long term investments
The long-term approach, also known by the names buy and hold or buy and forget it, is an approach where the investment time horizon is long and they should be more conservative. Long ? What's long? By long, i mean at least over 6 months but it should be over 1 year.
Long-term investments are those vehicles that you intend to hold for more one or several years.
Let's look at several key distinctions between short-term and long-term vehicles, so here's how you should consider:
When you purchase an investment that you intend to keep for many years, you may be expecting the investment to increase in value so that you can eventually sell it for a profit. In addition, you may be looking for the investment to provide income. When you purchase a short-term vehicle, you are generally not expecting much in the way of a return or an increase in value.
You will have different investment needs at different times of your life. When you’re young, and just starting out in your career, you may require a mix of long- and short-term investments. You might need the short-term ones to help pay for a down payment on a home, while the long-term ones could be used to help build resources for your retirement. But later in life, when you’re either closing in on retirement, or you’re already retired, you may have much less need for long-term investments.
If you purchase investments that you intend to hold for the long term, you probably have a long-term goal in mind — such as building resources to help pay for a comfortable retirement or leaving a legacy. On the other hand, a short-term investment would be more appropriate if you know that you will need a certain amount of money at a certain time — perhaps to purchase a car or to fund a vacation.
All investments carry some type of risk. One of the biggest risks associated with long-term investments is volatility, the fluctuations in the financial markets that can cause investments to lose value. On the other hand, short-term investment vehicles may be subject to purchasing power risk — the risk that your investment’s return will not keep up with inflation.
That being said, if you answered the following in the beginning of the post:
I need to diversify, i need mix of long-term and short-term vehicles
You were right !!! You've been paying attention on the subject !!! As an investor, you’ll need a mix of long-term and short-term investments.
By knowing the differences between these two categories, you should have a good idea of what to expect from your investments and this knowledge can help you make the right choices for you.
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