Smartvestments 6: Know the Difference Between Short-Term and Long-Term Investments

It is the dream of every person to have a passive income that will supplement the salary or earnings from their businesses. Such a dream can only be achieved through making investments that will generate the much-needed income. Investments, however, be it long-term or short-term and come with certain levels of risks that investors must be aware of before making the life-changing decision.

Why would you be investing, anyway?

Financial Security- You most probably know that an entirely secure and safe investment does not exist. However, you can get pretty close to safety with the right investment choices. Whether the investment is long-term or short-term, it offers the investor some form of financial security. Knowing that the investment generates more assures them of a stable future. Likewise, investments, especially short-term ones, offer assurance of the present since they can be liquidated at any time to solve any pressing need that can emerge.

Income- Investments can guarantee an investor a steady flow of earnings either to support their current income or as a form of social security during retirement. Of course, you should look out for investments that guarantee the highest outcome.

Growth- investment will lead to an increase in the value of your net worth. Financial assets will appreciate over time, and when the investor decides to liquidate them, they will realize some capital gains. Getting an investment that guarantees high returns is ideal for capital growth.

So what are Long-term vs. Short-term Investments?

Long-term Investments

These are assets that take a long time to mature, usually more than five years. One of the significant characteristics of this type of asset is its low returns compared to short-term investments. Earnings from long-term assets are low but highly predictable. It is suitable for people who want to realize capital gains in the long term.

For example, an investor who bought bitcoin in 2011 when it was less than $1 can make incredible returns if they sell it now at around $37,000. Notice, this would mean holding the cryptocurrency for over 10 years.

Short-term Investments

Short-term investments are those assets that are held for five years or less. These assets can easily be liquidated in a matter of days if the investor needs money. Investors who want to make quick cash can consider taking this type of investment.

Investors looking to make money in the short term can consider short-term crypto trading. For instance, you can decide to engage in day trading where you close your trades and make your profits before you go to bed!

Key Differences between Long-term and Short-term Investments

These two types of investments differ in several areas.

Risk Profiles

Long-term investments are generally considered to have a low-risk profile compared to short-term investments. The low-risk profile is mainly because they are not affected by seasonal fluctuations, making it less likely for the investors to suffer from periodic spikes in the prices of these assets. These assets have adequate time to recover from any shock they might experience.

Short-term investments are risky but with a higher return rate than long-term assets. These types of assets are highly susceptible to market forces as they have no time to recover from any market shocks. For example, suppose you buy assets that you intend to sell after one week, hoping that they will have appreciated. There are high chances that you will incur losses due to the volatility in prices, or possibly be lucky and make huge profits.

To increase the odds of making a profit, it is advisable to conduct a market analysis to determine the best asset to invest in.

Investor’s Goals

The choice between long-term and short-term investments depends on the goals that you have set for yourself. Short-term investments are best suited for short-term goals that range from several days to five years. Such goals include vacations, weddings, home improvements, and supporting elderly parents.

Long-term investments are associated with long-term goals. Such goals include retirement, child education fund, wealth-building, and buying a home. A long-term investment is best suited for those whose goals are to be actualized in many years. This kind of investment is relatively safe, and investors have a high chance of making money in the long term.

Whichever choice of investment you take; professional help is essential to ensure that you do not make a mistake and ruin your finances.

With the right partners, it will be possible to make the right decision and get value for your investment, so trust IXFI, Your Friendly Crypto Exchange, to bring you the most complete experience. And if you want more investing advice, you may want to consider looking through our Smartvestment series for more articles with information on how to make the right decisions and avoid falling into financial pits.