September 15th, 2020
Short-Term vs. Long-Term Investments
If you have ever invested any money, then you have likely felt a roller-coaster of emotions along the way. You may feel worried about the stability in times of crisis (i.e. the Financial Crisis or COVID-19), or you may feel excited and hopeful when the economy is thriving.
There is a lot at stake, so it is reasonable to feel this way, but a solid financial plan will grant some peace of mind.
No matter the economic/worldly circumstances, it is important to distinguish the difference between short-term and long-term investments before you make an investment. We think of short-term investments as spanning one to two years or less, whereas long-term investments are held onto for a longer period of time--around 8-10 years or even decades. Before you invest, understanding what your needs, goals, and the market (past, present, and future) look like will prove very beneficial.
Perhaps you have a small sum of cash and are looking to invest but want a quick return on your investment. You might be looking to earn some money in order to make a payment in the near future. In scenarios like this one where you need cash fast, it is generally smarter to make a short-term investment. This will ensure the liquidity you are needing, although the return will probably not measure up to that of a long-term investment.
On the other hand, you may have received a large inheritance and be lost as to where to put the money and how to grow it. In this case, a long-term investment may be better suited for your needs and goals. Long-term investments generally yield a higher return in the long run because historically, the market increases over time.
However, not all investments increase over time, so this is where a seasoned financial advisor can use his/her expertise to steer you in the right direction so you can meet your financial needs and goals.
Maybe your goals include making a big purchase on something like a house or car. If this is the case, then you will probably need to earn a great return on your investment in order to make a down payment. Thus, a long-term investment is the logical route in order to meet this goal. With the volatility of the market, you should proceed with caution when it comes to taking risks. Both short-term and long-term investments carry risks. Long-term investments rely heavily on long-term scope of the market, and not all investments will increase in value over time. Similarly, short-term investments may not increase enough to keep up with inflation and thus lose purchasing power.
Before you invest, educate yourself on the history of the market and take everything with a grain of salt. Study your investments in order to feel more comfortable taking risks and make smarter decisions with your needs and goals in mind.
There are so many things you can invest in, we advise you seek a professional opinion before investing in order to maximize return and minimize your risk.