It’s a common question that’s not easy to answer. Is it better to focus on long term or short term investments? Since each strategy has its own advantages and disadvantages, the better choice tends to vary according to your unique financial situation.
What are Short Term Investments?
Short term investments, or temporary investments, are those which are expected to be converted into cash in less than a year. There are many short term investing options available to anyone, including stocks, money market funds, treasury bills and bonds.
3 Benefits of a Short Term Investing Strategy
A major advantage of short term investing is that your money is not tied-up for an extended period of time. If there are fluctuations in the market, you have the ability to change your position.
2) Possibility of High Returns
Short term investments often carry more risk, which offers the potential to earn more substantial returns. For example, stocks on the Dow Jones Industrial Index typically outperform low-risk certificates of deposit (CDs).
3) Quicker Results
While it may take years for a corporate bond to mature, a stock portfolio is much more liquid. It’s possible to increase your wealth in a short span of time, if there are gains in your financial positions.
What are Long Term Investments?
Long term investments are assets that an individual or company plans to hold onto for more than a year. They could include stocks or bonds, real estate holdings or cash earmarked for later use.
3 Benefits of a Long Term Investing Strategy
1) Steady Growth
Long term investments typically offer steady growth over many years or even decades. In addition to rises in stock prices, long term portfolios often increase in value through compounding, or the ability to reinvest profits over time.
Long range investments are usually much less volatile than their short term counterparts. For example, you might invest your money in a proven company that is likely to provide modest growth over many years.
3) Fewer Fees
If you are using a long term investing strategy, your number of transactions will decrease significantly, cutting the fees you pay to a financial institution.
Is one Strategy Better than the Other?
The short answer is no. In investing, Financial planning all about finding the right balance. Each strategy has different expectations, satisfies different goals and carries different risks.
If you have questions about whether investing is right for you, schedule an appointment with a local financial advisor.