Which is right for you?
If you’re new to investing, choosing a strategy to best serve your goals can seem like a daunting task! Don’t worry though, you’re not alone there – that’s why at Super Network we provide tailored personal investment advice solutions to a multitude of clients, each unique with differing circumstances and financial goals.
Even when you’re entrusting your investment strategy to a professional, it is still important to understand where and how your money is being used. To begin, let’s first clarify the difference between short-term and long-term investing.
A short-term investment is considered to be any asset you hold for one year or less. Generally speaking, the typical investor will only hold a short-term investment for a few weeks or months at a time. Conversely, a long-term investment is any asset that you hold for a year or more, and most investors will generally hold long-term investments in their portfolio for several years or longer as part of an extended growth strategy.
Short-Term Investments
As we briefly touched upon already, a short-term investment is generally held for a few months at most, with investors seeking to profit from market volatility and near-term gains. Technically, almost any asset can be a short-term investment, but most will share some common characteristics, such as being:
- Volatile enough for price to fluctuate quickly, allowing investors to make a profit in a short timeframe
- Relatively small movements in price.
- Highly liquid, allowing the asset to be sold fast.
Common short-term investments include stocks, options, bonds, peer to peer lending (P2P) and exchange-traded funds (ETFs).
Long-Term Investments
Generally, long-term investments will be held for many years, as part of a lower-risk strategy and plan for the far future (think retirement). As with short-term investments, almost any asset can be a long-term investment. However, a long-term investment will generally increase in value slowly and somewhat predictably (unlike a volatile short-term investment) and tend to be somewhat illiquid, meaning it will be more time consuming and costly to cash in.
Common long-term investments include real estate and fixed-term savings accounts.
Which Investment is Right for Me?
Now that we can see the difference between short-term and long-term investments, how do we go about choosing the right investment type for you? Well, unfortunately, there is no ‘one size fits all’ answer here, as your strategy will depend on your financial goals and timeframe, and many of you may find that your best option is to have a mix of both.
Put simply, if you choose to invest in the long-term you can afford to take a bit more risk with the quality of your investment – with time on your side, chances are that any negative fluctuations will rectify themselves over the period of your investment. A short-term investment will require you to choose a liquid asset very wisely in order to maximise your return on investment (ROI) in a short period of time. Most passive investors opt for a long-term investment as it requires little time or input to see a gain at the end of the investment term.
While it may seem that a long-term investment portfolio may be your safest option, the greatest-performing portfolios are actually a mix of long-term and short-term investments and it’s important to consider the opportunity cost of only investing in the long-term. For example, an extra annual 2% return from short-term investments averaged over 30 years could see you with 50% more capital heading into retirement. This clearly demonstrates that too little risk can be just as detrimental to your portfolio as too much risk!
How Can Super Network Financial Services Help You?
If you require assistance devising and implementing an investment strategy tailored to your financial goals, our team of expert finance professionals can help you with everything from investment strategies to portfolio and funds management.
Visit Super Network to learn more about our investment advice, or get in touch with us for an obligation-free chat.
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