A lot of people are put off or intimidated by the idea of investment, either because of the perceived time commitment, high skill floor, prerequisite knowledge required, or any other excuse one can muster up. Fact is, investment is one of the smartest choices a financially independent being can make. And no matter how much the perceived difficulty of investment is to you, there’s no way that it is actually as difficult or daunting as you may imagine. Short Term and Long Term Investments are the two primary forms of investment, which is why we’re about to break them down
This is mainly due to the fact that the term ‘investment’ itself is such a broad, blanket term which could mean any number of things, from vintage cars, to real estate, to shares. The ease comes in the fact that you can choose to study, and specialize yourself in just one discipline of investment, and when mastery is achieved, you can be far more than confident in your investments, and be able to study and analyze them both effectively and efficiently.
If you’re a beginner, it might be worth your time to check out our tips and tricks guide here
With that being said, the first
question that comes to the mind of relatively new or even first time investors
is ‘should I invest long term, or short term?’ Well, this question happens to
be highly subjective, the answer depends on numerous factors, here are a few;
What kind of return you want on your investmentHow long are you willing to realistically wait for a
return.How much income you can put behind an investment.What are your present and future financial goals
Again, it bears repeating, that
these are just a few of many factors which impact whether short term or long
term investments are for you, it totally depends from person to person. With
that being said, you’ll never truly be able to decide what exactly is for you
until you comprehend the fundamental differences between both kinds of
investments. So, in this piece, we’re going to break down the primary
differences, as well as provide some examples of both long term, and short term
Short Term Investments
Short term investments cover a broad range of investments, the longest short term investments usually go up to no more than two years, while the quickest short term investments can come down to a matter of just seconds. Don’t be alarmed by this, as the trades which take place in a matter of minutes, seconds, or even hours are exclusively related to stocks, in fact, there is an entire trading methodology, known as ‘scalp trading’ which revolves around buying shares, and selling them extremely quickly, which yields a small return, but anyways, back to the investments. Short term investments usually don’t return as much on an investment than long term investments, but they certainly have their own benefits over longer investments as well.
For one, the shorter timeframe provides increased flexibility over long term investments, and it’ll be likely that you can buy and sell whatever asset you invest in during a much smaller timespan. Additionally, short term investments are easier to gauge, as their limited timespan makes it so you won’t have to account for nearly as many exogenous factors when it comes to the value. Lastly, short term investments are normally less expensive than the long term one, this lends itself to the fact that the return is more instantaneous than long term, despite it being smaller, so obviously the initial amount would be lower.
A few examples of short term investments include shares (which we’ll mention again later) as they can be traded quickly and easily on the market at your own pleasure, additionally, securities and some bonds also fall into here. Additionally, eccentric, valuable, and limited commodities are also short term investments. An example of this is, surprisingly enough, sneakers. Now rare, limited edition sneakers come out in ‘drops’ which means they are released just one time, in a very limited quantity. The retail value may not reflect it, but even just a day after, the resell value can go up 10 times as high in some cases.
Long Term Investments
Conversely, we’re now going to have a look at longer term investments. Long term investments are exactly what they sound like, they are large investments which are held on to for a long time before being sold, or in a lot of cases, they are not sold at all. Long term investments do not always return based on their selling value, and may also return in increments.
What are Examples of Long Term Investment?
For example, an extremely common long term investment is real estate, if you buy a house, you can choose to rent it out, which will return your investment for a very elongated period, rather than simply selling it at a higher price. Long term investments possess a great advantage over short term investments, the main one being the comfort factor. After completing your investment, you really don’t have to worry about it, since it’s in its nature to be a long term investment.
Certainly long term investments are more expensive, but their returns are higher, and they will return for a much longer period of time than short term. Examples of long term investments are the aforementioned real estate, commodities which increase value over time such as vintage cars, or even stocks in large multinationals in which you are more concerned with growth and ownership than monetary gain.
What’s Right For Me? Short Term or Long Term Investments?
There’s really no telling which is
better between short term or long term investments, the answer to that question
is purely subjective and will vary from person to person. If both types of
investments are studied properly, you should be able to apply your current
monetary situation, and discern which type of investment is right for you.
However, we continue to stand by our earlier statement that it’s a brilliant
choice to make as it (to a reasonable extent) ensures financial security for
the months, years, or even decades to come. However, as with everything, doing
your due diligence is an absolute necessity, as without research it’s extremely
simple to make the wrong investment, and lose an equivalent chunk of your
savings. So always do your research, stick to safer bets initially, and always
invest smarter, not harder.