Long and Short-Term Investment Strategies: Pros and Cons
Some say the investment isn’t worth the risk; others say, “Yes, I did go broke, but I will try again, and eventually end up a millionaire!” What do you say we knock it down to risk vs. reward in this article?
First of all, anyone who is going to invest in something should know that every present millionaire, at some point in his/her life, has gone broke; and every millionaire started somewhere whether that was $100 or $1,000. It’s important to understand that being broke is not the end of the world. It’s the point at which you get up and try again.
Investment Strategies
The dollar is an international currency everybody uses to save money because it is the most stable currency on the market. However, the fact is, when investing in cash, people lose 30% of in value annually. This leads to losing money rather than gaining it. Instead of considering debt as an investment strategy, let’s overview some of the strategies successful investors follow in order to supplement their income.
Short-term Investment Strategies
Temporary investments, mentioned earlier as short-term investments, allow for limited returns, minimizing risk. Since investors are driven by different goals, those who want easy access to their funds and the ability to withdraw them invest over the short term. Usually, the term runs from one to three years.
Deposit Accounts
Putting money in a savings account with a certain percentage of interest is one of the least-risky investment strategies. Let’s take the First Bank of the United States and its current investment plan as an example. If you reach the minimum balance that is required to generate interest ($5,000 U.S), you gain 1,200% of your funds annually.
Banks allow investors to withdraw their money anytime they want; however, some banks put limits on the number of withdrawals per year.
Short-Term Bond Funds
One of the classic ways to grow money is via short-term bond funds. You invest in bonds with maturity terms ranging from a few months to several years.
These are considered low-risk in comparison with long-term bond funds. If interest rates go up, the value of the bonds can drop. If this happens in the case of a short-term bond, the investor will be getting a lower rate over a shorter term.
Peer-to-Peer Lending
This kind of investment is based on lending money to other people — very often complete strangers. Investors go on peer-to-peer websites that list loans, which are not usually big sums of money, and the interest of the loan is lower than that of traditional lenders (banks).
Peer-to-Peer lending is not a secure type of investment, so if you can’t risk access to your money, this is not where you should look for investment opportunities.
Exchange Trading
Since Richard Nixon refused to follow the gold standard, a monetary system in which an asset has a value connected to a fixed amount of gold, fiat currencies have become more volatile. Instead of a 1% fluctuation possible in relation to the dollar, it is now 4%; and in the case of non-dollar currency pairs, the acceptable percentage of fluctuation hit 9%.
In terms of short-term investments, we are talking here about arbitrage deals or on-market speculations. Forex is a good example of a platform that provides opportunities for people to gain profit by exchanging one currency for another.
Long-term Investment Strategies
Long-term investment operates from the perspective of giving you a profit later in life: in terms of 10,20, or more years. Unlike short-term investments, they don’t allow an investor to withdraw his/her funds whenever or instantly. Let’s take a look at which exact investment opportunities people can take advantage of from the long-term perspective.
Stocks
Considering the fact that stocks are a paper investment — meaning you don’t have the responsibility of managing business or property — you buy and wait until the business starts making enough money to pay you dividends. Over time, compared to day trading and buy-and-hold strategies, investment in stocks has shown itself to be high -performing in terms of permanent profit.
Mutual Funds
Mutual investment funds are a set of stocks chosen and owned by professional finalists and hundreds of investors. The price of mutual-fund shares is the sum of bond prices divided by the number of bonds.
The biggest advantage of investing in mutual funds is the ability to spread risk since the money invested is divided among many enterprises.
Exchange Trading Funds
Unlike mutual funds, which are actively managed and aimed at outperforming the market, ETFs are passively managed funds. Shares are traded as ordinary stocks on the exchange.
The price for shares changes throughout the day and brings in opportunities for day trading (short-term investments) as well as the buy-and-hold strategy (long-term investments).
Real Estate
Investing in properties is often compared with stocks; however, company shares may drop in value over time, while the real estate market is more stable.
Not only will real estate investments bring you an annual profit, but if you lease your house, you may also receive a short-term profit.
Which Investment Strategies Did the Crypto World Adopt?
Cryptocurrencies appeared only about a decade ago, and have been booming on the FinTech market for a very short time. As cryptocurrency combines the features of both fiat and shares, it appears to have adopted certain investment strategies from general practices. Let’s have a closer look at what exact strategies were implemented and they were modified.
Arbitrage
Because of the fact that cryptocurrency has high volatility, day trading on various crypto exchanges has become one of the investment strategies adopted from fiat.
Making arbitrage deals certainly brings profit on a short-term basis; however, it is quite risky. Since the price of a cryptocurrency may rise and drop several times in a day, there is no proof that when a trader transfers money to buy it, the price won’t change. In this case, he/she wins if the price increases, but he/she can also break even or lose money.
Cryptocurrency is not just digital money. Cryptocurrency is a way to invest in a project or company. If a crypto exchange issues tokens and adds to the list of cryptocurrencies that traders can buy and sell on the exchange, they aren’t just buying a token, they are investing in the company that issued it. This is how cryptocurrency has brought more sense to the concept of money.
Buy-and-Hold
We all remember how early-Bitcoin investors became millionaires in 2017, and the buy-and-hold strategy was the reason this was possible. Since this is a strategy with a long-term perspective, we should consider the possibility of prices going up and down, and fluctuations may be drastic. The idea is that you don’t necessarily invest at a lower price; you invest because you have an image of it as a promising asset.
Margin Trading
The scenario for margin trading is quite simple: people who don’t have enough funds to invest in crypto borrow them and pay the lender back from the revenue they’ve made by trading those coins. However, this scenario is not perfect due to the highly volatile market of cryptocurrency. The investor can also lose the money he/she borrowed. This is why, when participating in margin trading, investors should carefully consider all the risks.
Let’s review the perfect scenario for margin trading: Alice has $500 U.S., but this is not enough, since she’d decided to buy ETH at $1,000 U.S. So, she borrows another $500 and invests in crypto. Later, when the price of ETH grows by 50%, Alice has $1,500, and she is able to pay the lender back. However, if the price falls by 50%, the lender would be able to take his/her money back before Alice withdraws it.
ICO
Investing in an ICO is very similar to putting money in stocks. Initially, ICOs offer coins, allowing you to invest directly in the company’s development. An IPO offers shares that are basically the same thing, but done with fiat money.
A modification that differentiates ICOs from IPOs is the fact that ICOs don’t have to be connected to a company already in operation. The only thing they need is an idea and a white paper to engage the investor. However, to issue an IPO, shares have to be linked to an existing company that owns a product or provides a service.
One point that characterizes both offerings is the price of assets: whether it is a share or a token, it grows depending on the success of the company.
Following the Support Line
Support-line tactics came from classic investment strategies, but this is a form of ordinary trading that can be found on the platforms. A support line is the upper or lower peak of a cryptocurrency price, within which the investor keeps the coin to him/herself. Whenever the price crosses the lower peak, the investor buys the coin. This may be done manually or automatically, with the help of trading bots.
After an investor has bought currency at a lower price, he/she sells it as soon as the price crosses the upper level set in the support line.
To Sum Up
“Cash is always a bad investment,” says Warren Buffett, American business magnate, and experienced investor. Owning stock is always better than investing in cash. This is why cryptocurrencies have made a breakthrough: they have features of both money and shares.
Investors have a choice between both short- and long-term perspectives adopted from traditional investment strategies like day trading, ICO investments, and buy-and-hold practices.
Because the cryptomarket is highly volatile, it brings a huge daily profit opportunity when working on trade platforms like Binance or Bittrex.
When there is a project you’ve heard about and you truly believe that it is a game-changer that will boom in a year or two, consider long-term crypto investment in ICO projects.
Buy-and-hold is another long-term strategy that you may want to consider when it comes to cryptocurrencies that serve as legal tender in promising projects.
In any case, there is one investment strategy that will always be on trend: self-investment. We’re not talking about owning properties; we’re talking about a constantly and boundlessly growing characteristic — intelligence. Comment on this point, and stay in touch to find out exactly what NewConsort has to offer in terms of investment in education.
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