Short-term vs. Long-term investors: We answer 3 fundamental questions
1. What is meant by Short-Term Investors vs. Long-Term Investors?
Short-term investors are those who invest in financial instruments intended to be held in an investment portfolio for less than one fiscal year. In many cases such investments may be held for only a few weeks, and in the case of traders, perhaps even only a few hours. Conversely, long- term investors represent people investing in long-term financial instruments that they hold for more than 5-8 years. However, the definition can change depending on who you ask. Some financial institutions define long-term as anything over 1 year, but the investment window of 1-5 years is often seen as a medium-term investment.
2. Which is better:
Short-term or long- term investments?
Your financial goals will drive whether short or long-term investments are better for you. The same asset can be a short or a long-term investment depending on the investor's approach - shares held by a day trader would be classed as a short-term investment whereas those held within a pension fund would be a long-term investment.
differences between short and long-term investmentsRisk profile
Short-term investors tend to favour higher risk/reward investments such as shares. Some shares can be quite volatile, such as those in tech or cryptocurrency. These can give the potential for quick gains, but of course, the value of shares can go down as well as up.
Passive vs. active
Short-term investors are usually more active when managing their portfolio since they are making changes on a more frequent basis to outperform the market. Long-term investors typically take a more passive approach to asset management.
Short term investors tend to be open to more volatile assets than long-term investors because short-term traders generally rely on stock volatility to realize a profit.
Investors who have immediate goals will tend to opt for short-term investments. If you are a trader that relies on the investment to pay your living expenses, then your goal will be to make income within the next week or month. Other short-term investors who might be looking to create a fund for a purchase such as a car or holiday, will generally be looking to make short-term investments. Those looking to provide retirement income will opt for longer-term options.
3. What are my
options for long-term investments?
Long-term investments include those assets that are less liquid than stocks such as real estate and bonds, but stocks that are held over several years also make great long-term investments. These investments provide opportunity for significant growth and can withstand fluctuations or downturns in the market. Investors who are looking to diversify can choose a multi-asset fund, spreading the risk across multiple asset classes. This protects your capital investment in the event of a fall in one or more specific sectors.
Advice from expatwealthatwork
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