In an age when investments are more easily accessible by everyone, it can be difficult to decide what type of investment is best for your needs.
Should you invest primarily in short-term investments that will yield results quickly, or would it be better to invest in long-term investments that will yield results farther down the road?
Each type of investment has its advantages and disadvantages… below you’ll find more information on each, as well as information to help you determine which type of investment is right for you and your needs.
Advantages of Long-Term Investments
Long-term investments can be a useful part of retirement planning, since they yield their results over time. They can also help to augment savings, plan for major events several years down the road, or establish a buffer that can be used to cover emergency expenses that might arise in the future. Long-term investment is a great way to put money aside for later, all the while getting the largest return over the time that elapses without a large amount of risk.
Disadvantages of Long-Term Investments
The biggest disadvantage of long-term investments is that they often take years to begin to realize their potential… before that time they are either not worth cashing in, or they have additional fees associated with early withdrawal from the investment. Long-term investments also tend to have much lower interest rates or less of an increase in value than most shorter-term investments.
While they tend to be more stable than short-term investments, there is still no guarantee that most long-term investments will yield more than standard savings or that investments such as stocks and bonds won’t end up lowering in their value.
Advantages of Short-Term Investments
Short-term investments are best suited for making money in a matter of weeks or months instead of years. They are ideal for individuals who keep an eye on the stock market and who can recognize the opportunity that they present… fast growth that peaks quickly.
Some types of short-term investments can also be used as a method of putting money aside for upcoming or annual events such as Christmas, birthday shopping, or other holidays and events.
Disadvantages of Short-Term Investments
There is generally a much larger risk associated with most types of short-term investments, and no guarantee as to when the bottom will fall out and the value of the investment will start to drop rapidly. Additionally, the timing required to get the most out of many short-term investments is precise; even missing a purchase or a selling opportunity by a day can lead to a significant loss in the value of the investment.
Due to this general instability, these investments are not recommended for those wishing to put money aside for events down the road that are more than several months away.
Which Is Right for You?
There may not be one specific type of investment that’s right for you… many investors choose to divide their money into a number of short-term and long-term investments instead of choosing one or the other. To help you to determine whether you should focus a little more on short-term or long-term investments, however, you should take the time to consider what the investment will ultimately be used for.
If the investment is designed to take advantage of current market conditions or interest rates, you might be in the market for short-term investments; if you’re simply wanting to build up additional money for later, though, then long-term investments are likely the way to go. Just remember not to limit yourself to one or the other exclusively .