When it comes to investing, it can be difficult to know if you should make your money work hard for you in the short term, or if it’s better to put it into a more lucrative long-term investment.
On that note, let’s take a look at short-term and long-term investments and ascertain which is better!
What’s Short-Term Investment?
A short-term investment refers to an investment that is only viable for a limited time before it matures. Short-term investments can usually be transferred and liquidated quickly if necessary.
A three-year time period is typically sufficient for short-term investment. A liquid investment means an investment that can be easily converted to cash.
You can choose to invest in short-term securities such as money markets or day trading stocks.
You must consider your income, your tax and your dependents to determine if a short-term financial investment is right for you.
You might find it difficult to answer these questions. If so, you can ask your financial advisor a series of questions to ensure that they have clear financial advice.
Benefits of investing in short-terms
Tempo
Short-term investment has the advantage of accumulating profit in short time periods. You don’t have to hold funds in one place for long periods.
If you make a quick-term investment, your money can usually be returned in weeks or months, depending on how things turn out. This is in contrast to long-term investments that take years.
Flexibility
Investing in short-term is flexible. Investors can easily liquidate investments before the investment becomes fully realized.
A short-term investment can be a great way to get started in investing.
Advantages and disadvantages of investing in short-terms
High-Risk
Short-term investments tend to be high-risk/high-reward – in other words, while you stand a chance to make a huge return with a short-term investment vehicle such as crypto or stocks, there’s also a chance you could lose a decent chunk of your money.
Maintaining a Home
Short-term investments have the disadvantage of high inflation and market volatility, as well as higher taxes. Short-term investments are frequently not favorable in tax terms because the taxes on profits may be discourageing.
How long does a long-term investor work?
Long-term investments are assets that people hold on to for longer than three years. Short-term market changes do not affect long-term investment.
Long-term investors invest for the long term. Investments can last for 7-10 years. Long-term investments can be made in real estate, target-date mutual funds, small cap stocks, or other assets.
The Advantages Of Long-term Investing
An advantage of long term investments is that it is not time-consuming as it doesn’t require constant attention or monitoring markets for fluctuations on a daily basis.
The long-term returns of long-term investments can be higher because there are fewer transactional fees. Even capital gains tax may prove to be more beneficial for long-term investment over short-term ones.
Advantages and disadvantages to long-term investment
Illiquid Nature
One of the biggest drawbacks of long-term investments is the inability to convert them into cash. Also, early liquidation can result in a substantial loss.
You can now decide which type of investment is best for you. However, each person has their own financial situation and that will impact your financial decisions.
Entrepreneurship Life’s first article was entitled Short-term or Long-Term Investments: Which One Is Best?