With more people than ever trying to build up their funds, those who are careful with their money are now beginning to truly appreciate the benefits of investing. Investments can be described as something you buy or put your money into in order to obtain a profitable return. With so many people considering investing their money and asking themselves why should I start investing, it is worth exploring whether long term or short term investing is better.
Firstly, with whatever type of investment you are considering making, it is important to note that you should have a rough idea about what your investment goals are. One of the main decisions you can make when it comes to investing is whether to opt for short term investments or to allow your investments to grow over a longer period. Short term investing involves putting your money with a financial product or market in hopes to obtain a return in a shorter space of time, whereas a long-term investment is one intended to be held for a significant amount of time – at least five years, but typically ten or more.
One benefit of investing in the short term is that they can serve you well in a portfolio and can result in immensely fruitful results quickly if managed correctly. Examples of this type of investing include day trading where stocks are purchased and sold within the space of a day in order to capitalise off of short-term price fluctuations. Short term investments also pertains to backing out of an investment plan before the advised period of time is over. These types of investments are highly volatile meaning that they are typically volatile assets whose prices move quickly enough for investors to profit from the asset within a brief period. They are also highly liquid permitting investors to purchase and sell them quickly without hassle. Of course while this could result in potentially higher returns due to market and compound growth, with short term investing there comes a high level of risk so it is best to carry out thorough research prior to considering doing it.
Alternatively, one of the main advantages of investing in the long term is the potential for market growth in a climate where stock markets are changing every day. With a long term investment, you will experience compound growth which is the return reaped not only on your initial investment but also on the returns you obtain during its lifetime and reinvest back into it. This cannot be fully experienced with short term investments as you won’t be able to witness the true potential gains of compound growth. On top of this, with long term investments, there is more time to bounce back from any losses due to a longer timeframe, whereas with short term investments there is no time to recover losses but there is immediate access to your funds.
Furthermore, another benefit of long term investments is the fact that there is a lot less risk than with short term investments. This means that your money is less likely to be impacted by future recessions or fluctuations. Moreover, with long term investments you are required to pay less taxes as long term capital gains are taxed at between 0% and 20% meaning that you get to keep more of your money if you invest over a longer period of time. One of the most common long term investments that can be made is a personal pension scheme whereby a person puts their money into a fund that they cannot access until a certain age.
Of course, with whatever type of investment you are thinking of making it is advised that you do so according to your own personal preferences and financial situation. While long-term investments are the best option for most individual investors, short-term investments can be used if you are savvy enough to exploit openings. With long term investments you have to be in it for the long haul whereas with short term investments, you must prepare to accept a potentially smaller return in a shorter period of time
Ultimately, as the volume of people wanting to grow their money is increasing there are even more people wondering if there is a difference between long and short term investing. While both types of investing have their benefits, there is no doubt that long-term investing provides an increased likelihood of a higher return through compound growth and the recovery of losses over time. So, why not join those who are already experiencing the benefits of investing by trying it out today?
