Investing Long Term Vs Short Term: Pros and Cons
There are many more options for investing today than ever before and it can be daunting knowing where to put it all. While the quick returns of short term investments are immediately attractive, long term investments can end up earning you more over time. Today we’re going to help settle the debate between long term vs. short term investments.
When you think about investment, what comes to your mind?
Is it buying some stock, holding for a few years and selling it later for profit? Or is it squirreling interest into a 401k until you reach retirement?
There are lots of investment options today and it can be difficult settling on one or two to fit your portfolio. Many people will tell you that the best investments are all long term. But maybe you have a buddy or two who flipped major returns as a day trader and made you interested.
We want to help make things easier for you by discussing the pros and cons of short and long term investing.
Short term investments
Short term investments refer to an investment that is sold or converted into cash within a short period. Usually between a couple months to three years. Some common short term investment options include:
- Treasury bills
- Short term bonds
- Peer to peer lending (P2P Lending)
- Certificates of deposit
- Dividend trading
These types of investments are often quite risky due to the high degree of speculation required. It can be hard to predict whether or not the value of an asset will increase in the short term.
- Money is not locked in for a long period of time. Easy to learn and move on.
- Can take advantage of compounding interest from multiple small investments.
- Potential short-term earnings are very high.
- It’s difficult to get good returns and very easy to lose money.
- Short term investments can often earn less over the long term than a long term investment.
- Higher tax rates usually apply to short term gains.
Long term investments
Long term investments refer to a situation where assets are held for an extended period ranging from one year to several lifetimes. In some instances, the investments may never be sold.
Being a long term investor means you are willing to wait for a long time before you can get rewards for your investment. As such, you should have enough capital to allow you to hold up some for an extended period.
For a company, long term investment includes investments such as:
- Mutual funds
- Real estate/property
- Other physical assets (like art).
For an individual, long term investment entails savings and investing for retirement. As an investor, you can use the years you have before retiring to make crucial risks that will lead to rewards even after retirement.
So, should you invest long term or short term? Here are some advantages and disadvantages of long term investment that you should consider.
- More strategy is required for long term investments.
- Much easier to secure high returns.
- Less stressful. You don’t need to worry about day-to-day fluctuations.
- Lower capital gains taxes are applied to long term investments.
- They take a longer time to mature.
- More small costs over time from management fees, etc.
- Can still fail if chosen poorly.
Investing long term vs short term, which should you choose?
As you might guess, you really shouldn’t just choose between one or the other. The best option is always to diversify your investments with a mixture of both.
As a rule of thumb, most of your money should be invested in somewhere that can give you safe returns above the rate of inflation. Generally your long term investments are a better way to secure guaranteed interest from most of your money.
For short term investments, you should only play around with money you are okay with losing. This lets you try a wide range of options that could end up netting you significantly more money to put back into your long term portfolio. But if they don’t, you can absorb the cost long term and put it down as experience.
There are a couple places where you can invest both short term and long term.
Invest long and short term on MyConstant for returns of up to 11% APR
Today, many platforms like MyConstant let you do both short and long term investing all in one place.
We offer short-term peer to peer loans to investors ranging from one to six months for 6-7% APR. All lending is fully-backed by cryptocurrency collateral so you don’t have to worry about borrower defaults hurting your returns.
For longer holds, we offer tools like Loan Originator that can earn you up to 11% APR investing in borrowers around the world. All loans secured by a buyback guarantee.
Diversification has never been easier, come check us out and see how you can be earning better today.
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