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.
The
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.
Volatility
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.
Investment goals
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
Understanding your investment options requires significant research. We have
long-standing expertise to ensure you optimise your portfolio to meet your
investment goals. Contact us today for your free no- obligation discussion: info@expatwealthatwork.com
